ArtsProfessionals salary survey has revealed the disparity between wages in the arts and other industries. Low salaries mean many arts workers are eligible for tax credits, but not all who are eligible take advantage. Mahmood Reza explains how the credits work.
The government, through its tax credit system, offers financial support to families, to those in low-paid work and to the self-employed with or without children. This article will focus on the new child tax credit (CTC) and working tax credit (WTC) scheme that has been in operation since April 2003, outlining the main qualifying conditions and providing some illustrations.
Both CTC and WTC are administered by HM Revenue and Customs through their Tax Credit office; this is an oddity in the sense that CTC and WTC are effectively (tax free) Social Security benefits.
Awards are made for each income tax year and are initially based on the claimants income of the preceding tax year. CTC is payable to UK-resident single parents and couples, married or otherwise, who are responsible for children aged under 16 or young people (over 16 and under 19 in full time, non advanced education) and whose income is within a set limit. The CTC award is increased if the child is aged under the age of one, and/or the child or young person is disabled.
WTC is payable to UK residents who are at least 16 years old, work at least 16 hours per week and whose income is within a set limit. Additionally, the claimant must either:
- Have dependent children, or a mental or physical disability that disadvantages them from getting a job, or be over 50; or
- Be at least 25 years of age and work for at least 30 hours a week.
Where applicable, the final award is made up of:
- A basic award element (£1,665)
- A couple or lone-parent element (£1,640)
- A 30-hour element (£680)
- A disability element (£2,225 to £3,170) this covers a wide range of conditions
- A 50+ return to work element (£1,140 to £1,705); and
- A childcare element up to £300 per week.
The Revenue only considers taxable income when evaluating a claim for example, income from employment and self-employment (taxable profits), taxable social-security benefits, savings, investment and rental income. Certain income is disregarded for example, rent-a-room scheme income, savings, and investment income over £300. Capital sums such as savings, property, and investments are normally disregarded. Business losses incurred by a self-employed claimant can be used to reduce other income of the claimant and the spouse or partner, meaning there is less taxable income to assess.
The CTC or WTC award is reduced by a tapering rate where it exceeds certain limits. The following few examples demonstrate the estimated income cut off where an award may not be made:
- A single person with income over £11,435
- A single parent with income over £21,730
- A couple with (say) three children with income over £30,868
- A single person in receipt of Disability Living Allowance with income over £17,232.
The moral is, contact the tax office (0845 300 3900) and claim: there is nothing to lose.
Mahmood Reza is Proprietor of Pro Active Accounting.
t: 0116 224 7122;
e: arts@paa.uk.com