Tax Credits are very important to contractors and directors of limited companies. Tax Credits allow for the ability to make a protective claim wherein one can safeguard oneself against an unexpected drop in income. This drop in income, however, has to be low enough to enable income support. This system was introduced to upgrade and incentivize the current tax system as opposed to straight on handing out cash. The aim of the system is to encourage people to stay on in low-wage employment rather than resorting to unemployment. The money and accompanying cash benefits are mainly to help low-income workers and people with children in need of financial aid. Persons who avail Tax Credits will not receive any additional income but will get sufficient monetary coverage if their income falls.
Child Tax Credits are beneficial to individuals and couples with children belonging to lower socio-economic backgrounds. They help with the cost of raising a child. The credit is usually payable to couples having children with a joint income of under 40000 pounds although this margin can increase and vary depending on elements. Households with higher income levels can also qualify if they have more than one child, a child with a disability and/or for covering childcare costs. If the couple is separated and there is a question as to who the primary caregiver of the child is, then the HMRC will decide. The amount of Child Tax Credit a person or couple gets depends on factors like the income, the number of children and whether the child has a disability.
A person responsible for at least one child under the age of 16 or a young person under 20 under full-time education or training can qualify for a Child Tax Credit. The person does not have to be working in order to be responsible for the child. The tax credit is accumulative so someone with two children will be entitled to more coverage than someone with one child. The Credit is limited to four children. The Credits are not taxable and can be awarded in addition to each other. If a person has a child benefit then this credit will only enhance that benefit.
Tax Credits cannot be calculated that easily. HMRC has formulated a complicated procedure to calculate Tax Credits. Persons applying for the credit can use their automated calculator which will accurately decide how much Credit a person is entitled to. A couple having joint income will find it easier to use the automated calculator as the increase in the number of additional elements such as multiple children, childcare or child with a disability will push the qualifying bracket into the high earners and they will get more monetary benefits.
Tax Credits can be applied for by freelancers, contractors, and directors of limited companies. They can be based on individual circumstances and varying needs. Not everyone who applies will be eligible to receive payments immediately. In the case of limited companies applying for Tax Credits is usually for having a fallback option in case there is a drastic and unexpected drop in income. Directors have to make a protective claim with the HMRC. There will not be any benefits in the beginning and companies will only qualify for support when income drops below 6420 pounds a year. If the income drops below that limit then the company’s information will already be in the HMRC’s system which will allow the company to make an immediate claim. Credits are determined by a number of factors. Due to this HMRC has developed a questionnaire to check whether a person or company qualifies.
Child Tax Credit can be applied for at the official website which is online at Gov.uk or by requesting a form by telephoning 0345 300 3900. When a person applies for the Child Tax Credit the Tax Credit Office will take into account the person’s circumstances and that of the person’s partner when deciding the entitlement amount. The minimum amount of annual income that a couple having one child needs to have is 40000 pounds, two children is 55000 pounds and three children is 65000 pounds. This is subject to certain additional childcare costs. If there are no childcare costs the amounts reduce down to 250000 pounds, 35000 pounds and 40000 pounds for one child, two children and three children respectively.
The Tax Credits claim has to be renewed every year to keep getting them. A Tax Credit renewal pack is available to those receiving the Credits. The deadline to submit the form is July 31st every year. If the deadline is missed then the Tax Credit Office has to be contacted within 30 days of the date given on the statement of account. The office will then process a renewal statement to reinstate the claim. If there is a change of circumstances HMRC has to be notified immediately. Otherwise, there will be overpayment which sounds good at first but will become a pain at the time of amount repayment.
Anyone can manipulate their income to get higher Tax Credits. This is against the law and HMRC will take steps to ensure against this abuse. Child Tax Credits exist to support the employees by helping them raise their children and this help should not be exploited. It is to make lives better for those who are availing it so there can be good progress for the future.