Personal Tax

Trading profits and losses and tax credits

Produced by Tolley
  • 22 Mar 2022 09:46

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

  • Trading profits and losses and tax credits
  • Migration of tax credits to universal credit
  • Determining the profit or loss for tax credits
  • Trading losses for tax credits

Trading profits and losses and tax credits

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New claims for tax credits are no longer possible as they have been replaced by the universal credit for all claimants. 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.

Determining the profit or loss for tax credits

A claimant’s trading income is defined in the regulations as follows:

  1. the amount of his taxable profits for the tax year from:

    1. any trade carried on in the UK or elsewhere, and

    2. any profession or vocation the income from which does not fall under any other provisions of the tax credits regulations

  2. if the claimant is a partner in the trade, profession or vocation, his taxable profit for the year arising from his share of the partnership’s trading or professional income

SI 2002/2006, reg 6

‘Taxable profits’ has the same meaning as set out in ITTOIA 2005, Part 2 and is therefore net of any capital allowances claim. In the case of both sole traders and partners, the averaging rules are ignored so the profit used for tax credits is the taxable profit for the year before averaging is applied. Averaging for income tax purposes is discussed in the Averaging of profit guidance note.

The basis period rules for tax purposes are used to determine the taxable profits for the tax credits claim. For sole traders and partners with established

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