Before we deal with the issue raised by the title of this article it is necessary to outline the claims procedure.
In order to qualify for tax credits for the complete tax year 2011-12 it is necessary to make a claim before 1 July 2011 as claims can only be backdated 3 months.
Any claim now for 2011-12 would have to be based on your taxable income to 5 April 2011, the previous tax year. If your income for that year was over the tax credits threshold, and if you did make a claim before the 30 June 2011, the Tax Credits office would issue a ‘Nil Award’ for 2011-12 – effectively your claim would be recorded but no payments would be made to you.
Let’s say that you are self-employed, you have made no application for Tax Credits, and during the 2011-12 tax year your income dropped from £100,000 to £10,000 due to a number of factors:
- Loss of a major customer
- Bad debts
- Claim for purchase of new plant and equipment (to take advantage of the present 100% write down)
It only became apparent that your actual income would be at this level in June 2012 when your accounts were completed for the year to 31 March 2012 (the basis for your 2011-12 tax assessment). As you have made no claim for Tax Credits up to this point you could only backdate a claim to 5 April 2012. This being so you would receive no Tax Credits for 2011-12.
If, however, you had made a protective claim before end of June 2011, you could ask for your ‘Nil Award’ to be reassessed based on your actual earnings of £10,000 for 2011-12, instead of the earnings for the previous year amounting to £100,000. If all of the other qualifying conditions were satisfied you would then get a cheque for a full year’s tax credit claim.
This scenario does not just apply to the self-employed. Anyone, whose income fluctuates for whatever reason, may benefit in the same way. If it is likely that your income may drop in 2011-12, as compared to the previous tax year, please contact us now so that a protective claim can be put in place.