Credit where Credit’s due

Posted: 11th May 2015

In uncertain economic times it is worth remembering the value of protective tax credit claims. Claims for tax credits can generally only be backdated by up to three months. It will be too late to make a claim at the end of a tax year for the whole tax year, even if income for the year turns out to be low enough to have qualified.

Where income is currently too high to qualify for an award, making a claim to safeguard tax credit entitlement – a ‘protective claim’ – will mean that the claimant is ‘in the system’. It is possible to claim even if income is too high, provided the claimant meets all the other necessary conditions to qualify for tax credits.

A protective claim produces a nil award of tax credits, but this can be amended at a later date if the claimant’s income reduces unexpectedly. This could happen, for example, as a result of redundancy, or one partner giving up work to have a baby, or due to bad debts, losses or a sizeable capital allowances claim in an unincorporated business. If the claimant is not already in the tax credit system, a new claim can only be backdated up to three months.

The amounts which may otherwise be lost could run into £’000s, particularly where the family is paying for childcare.

Always check with your professional advisor before taking or refraining from taking action. Tax legislation changes regularly!