Notional income and anti-avoidance for tax credits

Produced by Tolley
Notional income and anti-avoidance for tax credits

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

  • Notional income and anti-avoidance for tax credits
  • Migration of tax credits to Universal Credit
  • 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

Migration of tax credits to Universal Credit

New claims for tax credits are no longer possible as they have been replaced by the Universal Credit for all claimants except those entitled to severe disability premium. Existing claimants will continue to receive tax credits until they are migrated to the universal credit system. Migration will take place when a change in circumstances is reported.

See the Universal credit guidance note.

Anti-avoidance for tax credits

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 the claimant did not receive it.

For example, these rules apply where claimants:

  1. deliberately get rid of income in order to claim or increase their tax credits

  2. fail to apply for income to which they are entitled

  3. 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:

  1. claimants treated as having income under the Income Tax Acts

  2. claimants depriving themselves of income in order to secure entitlement

  3. claimants having income available to them on application

  4. claimants providing services to

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