Tax Credits are a free benefit offered by the government for both individuals and businesses. They can provide a huge financial support to those in their first few years of running a business, especially when the first few years include smaller profits or even a loss due to necessary investment.
In this blog, we will cover everything that you will need to know about Tax Credits, from what exactly they are to how to renew your Tax Credits, and how to check if you qualify.
What are tax credits?
Tax Credits are a form of state benefits applicable to people responsible for children, disabled workers or workers on a low income. This includes self-employed individuals and company directors if their earnings are below the required earnings thresholds.
There are two forms of Tax Credits – Child Tax Credits and Working Tax Credits. Under some circumstances, you can be eligible for both.
There is no tax to pay for these benefits, and you do not need to be paying National Insurance or any other form of tax to be eligible.
Tax Credits depend on an individual’s household and the circumstances of the household, this determines whether you are eligible for the benefits as well as how much you would receive.
How do I apply for tax credits?
The first step for applying to claim tax credits is answering a few simple questions about your circumstances. This allows the Tax Credit Office to work out whether you qualify for the benefits.
In order to answer these questions, you can either use Gov.uk’s online tool here or alternatively call the Tax Credit Office on 0345 300 3900.
If you call the Tax Credit Office, in addition to answering the questions they will be able to give you more information regarding the benefits and will also be able to give you an estimate on how much you will receive.
If you qualify, you will then be able to order the claim form. You will receive the order forms within 2 weeks of applying for it, and when you have received the form, you will also receive guidance on how best to fill it out.
What if my circumstances change?
If any of your circumstances change, you must report them to the Tax Office as soon as possible. If you do not report these changes and are overpaid, you will have to repay all the credits which you were overpaid.
If you don’t report these changes within a month, you can be fined up to £300. Similarly, if you carelessly or purposefully give the wrong information, you can be fined up to £3,000.
You can report these changes either online, by post or by phone. When informing the Tax Office of these changes give as much information as possible. For example, if you change job, you will need the information regarding the dates of employment and the PAYE number for both your new job and previous job.
How do I renew my tax credits?
After 5th April each year, you’ll be asked to renew your tax credits. The normal renewal date is 31st July 2018. If you miss your renewal deadline, your payments will stop and additionally you will have to repay all the tax credits you were given in the previous tax year.
You can renew your tax credits either online, by phone or by post. In order to renew your credits, you will need the following:
- Your renewal pack.
- National Insurance Number.
- A note of any changes to circumstances.
- You and your partner’s (if applicable) total income.
- The renewal reference from your pack.
The most important detail of the renewal will be your income for the tax year. This should match the information included in your self-assessment tax return, so for self-employed individuals, there is a bit of a rush to hit the renewal date of 31st July.
However, it is possible to provide estimated figures and then update them before 31st January. This should only be used when necessary as it may mean that you are not paid the correct amount of tax credits for almost 9 months in extreme cases.
We think it’s well worth the time checking if you’re eligible for tax credit support, especially if you are a new or small business – they could be a very helpful financial boost or buffer to support you during any turbulent months.