Did you know you can plan your tax credit income if you are in business in order to minimise the income from year to year?
For example, if you are a sole trader or in a partnership you could make a capital purchase (e.g. a van) just before your accounts/tax year end. This will reduce your taxable income used for tax credits purposes, by the cost of the purchase.
Alternatively you could make a pension contribution. Again this reduces your taxable income by 125% of the actual pension contribution.
Or you could utilise old business tax losses from bad trading years in the past on the same business; also any current year business losses can be used to offset against your other taxable income or even against your partner’s taxable income (unlike for income tax where every person’s income is considered on a stand alone individual basis – for tax credits, joint income is taken).
All of these will impact on your taxable profits on which tax credits will be based. And the lower of last year’s or the current year’s income is used to calculate the tax credits figure (subject to a £25,000 disregard this tax year, £10,000 next tax year), meaning that if you have one particularly low year of taxable income, that could be used for the tax credits income figure for two years, maximising your tax credits income!
We recently helped someone to recover 98% of the full value of their capital purchase of diagnostic equipment for their new car service business; 20% tax refund, the rest, 78% from tax credits, half in the last tax year, the other half in this tax year.
Want to know more? Give us a call to see how we can help and plan to maximise your tax credit income from planning your business affairs. Contact Jan on 07890 239442