Tax credit change could cost farming families thousands

Many farming families will lose thousands of pounds a year in support when the government’s planned universal credit system replaces tax credits from 2014.

The new system is aimed at employees and will create difficulties for self-employed people, according to Rob Hitch, partner with accountant Dodd & Co, Cumbria.

The proposals are currently at White Paper stage of government but no one doubts that it will happen, Mr Hitch said.

“These changes will have a big impact on marginal farm businesses which in recent years have come to rely heavily on tax credits.

“A couple currently earning £10,000 a year in business profit between them and with two school-aged children can now receive a payment of £8348 in tax credits.”

However under the proposed regime, they would get no financial help because it will assume that all self employed people earn at least the minimum wage.

Taking the example of the husband and wife partnership above, their combined income would be £24,669 if they worked a 40-hour week each at national minimum wage rates.

Another change will be the introduction of capital tests which will mean those with more than £16,000 of capital will receive no credit. It is not yet clear what approach will be taken to business assets in assessing capital under the new system and this may vary between regions.

Dodd & Co acts for between 600 and 700 farmers, of which roughly 25% claim tax credits with the help of the firm. Others make their own claims and others still are eligible but do not make claims. Mr Hitch urged anyone who may be eligible, to make a claim as soon as possible.

The system will begin for new claimants from 2014, but existing claimants will be moved onto the scheme between 2014 and 2017.

“People who already have a claim in place should benefit from the tax credit rules for longer, so everyone should ensure they have a protective claim in place,” he said.

“For people with children, the thresholds are relatively high – you can earn between £20,000 and £30,000 and still have a valid claim for tax credits depending on the number and ages of children.”

Tax credits are a means tested social security benefit introduced in 2003, comprising working tax credit and child tax credit, with the aim of making work more financially attractive for low earners.

“Before their introduction, many farmers would have been entitled to several benefits but were always reluctant to claim them. Tax credits brought a real change in attitude to claiming and people have really come to rely on them over the past four or five years,” said Mr Hitch.

“The claims system is not too onerous and the amounts for which claimants are eligible are reassessed once a year.”


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Are you, like many other farms, missing out on tax claims for R&D?

If you’re a limited company, you could be eligible for tax credits if you’re carrying out R&D on your farm. For more information and to find out if you’re eligible visit our R&D tax credits page.

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