Notional income and anti-avoidance for tax credits

By Tolley
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The following Personal Tax guidance note by Tolley provides comprehensive and up to date tax information covering:

  • Notional income and anti-avoidance for tax credits
  • Claimants treated as having income under the Income Tax Acts
  • Claimants depriving themselves of income in order to secure entitlement
  • Claimants have income available to them on application
  • Claimants providing services to others for less than full earnings

The tax credits legislation makes very little mention of specific anti-avoidance rules. Instead, it refers to ‘notional income’ which is income that is treated as the claimant’s income even though he did not receive it.

SI 2002/2006, reg 13

For example, these rules apply where claimants:

  • deliberately get rid of income in order to claim or increase their tax credits
  • fail to apply for income to which they are entitled
  • provide a service for low rates of payment

Where you advise a director of an owner-managed company in relation to tax credits, this is a key point. Clients will frequently have established for themselves that drawing minimal income from their company will enable them to increase not only tax credit claims but also give access to other Government support.

There are four different types of notional income that should be considered when looking at a claimant’s tax credit affairs:

  • claimants treated as having income under the Income Tax Acts (SI 2002/2006, reg 14)
  • claimants depriving themselves of income in order to secure entitlement (SI 2002/2006, reg 15)
  • claimants having income available to them on application (SI 2002/2006, reg 16)
  • claimants providing services to others for less than full earnings (SI 2002/2006, reg 17)

These anti-avoidance provisions are considered below in turn.

Claimants treated as having income under the Income Tax Acts

Where a claimant is treated as being in receipt of income under any of the following income tax provisions, he is treated as having that income for tax credit purposes.

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