SEISS, child benefit and marriage allowance are some of the tax benefits sole traders and limited company directors may have to pay back if their income increased more than a normal trading year during the COVID pandemic.
Self-Employment Income Support: will you have to pay it back?
If you are self-employed and benefited from the Government’s SEISS (Self-Employment Income Support Scheme) grants, you may have to pay some of that benefit back to HMRC. This will be the case if your income increased to a higher level than in a ‘normal’ trading year, which will place you in a higher tax bracket.
If you received a SEISS grant and then business increased after there could be some tax implications for two other tax benefits that are commonly claimed in the UK.
Child benefit: did you exceed the income limit?
Mike Blaken, accounts director at Optimum Professional Services in Swindon, said in a recent report in Business Biscuit that if a parent or guardian is entitled to claim Child Benefit, there can be just one claimant per child.
“However, if you are claiming Child Benefit and your income exceeds £50,000 it must be paid back at a sliding scale up to £60,000. Thereafter all Child Benefit claimed must be repaid via self-assessment,” said Blaken.
Child Benefit is currently £21.15 a week for your first child and £14 a week for any children after that.
He provides an example:
If your average earnings were £48,000 annually but dropped due to Covid to around £35,000 and you claimed three rounds of SEISS grant, then your income now will make you a higher rate taxpayer. You’ll lose around 70 per cent of the Child Benefit and have to pay 40 per cent income tax on an extra £7,000 approx.
Marriage allowance
If you are self-employed and your spouse is a basic rate taxpayer, you should be taking advantage of the Marriage Allowance. This tax benefit allows you to transfer up to £1,260 of personal allowance to their husband/wife.
However, the husband/wife has to be a basic rate taxpayer to receive this, Blaken explains. “If due to Covid payments, they are pushed into the higher rate tax bracket they will lose this benefit, which equates to up to £252.”
Prepare your tax affairs in October to avoid surprises
If you start to prepare your tax affairs in October, you will have a better idea of any shocks come tax filing time in January. You could start saving now for any surprises and put off any big purchases until the tax bill is paid.
“Losing receipts” and “not being bothered” are two of the most popular reasons small business owners and freelancers are not claiming legitimate expenses. The thing is, if you’re self-employed, most of your business expenses can be claimed back against your tax bill each year.
However, research suggests that many small businesses aren’t sure which expenses they can claim for, potentially costing them thousands of pounds each year. This is another reason to not leave your tax affairs last minute is there is a bigger chance you will leave out expenses that could help lower your tax bill. Read more on that here.
Have a freelancer tax question? Email us your question to the attention of “The Freelancer’s Couch” on editor@freelanceinformer.com
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