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Where Taxpayers and Advisers Meet

Effect of council business grants on tax credit claim

Lsp54
Posts:82
Joined:Tue Sep 15, 2009 5:11 pm
Effect of council business grants on tax credit claim

Postby Lsp54 » Sat May 15, 2021 5:44 pm

Hello,
My client is a low earner who rents a business property for acupuncture and other therapies. She is exempt from business rates. Normally her profit after expenses and rent is about £6000.

She has received coronavirus business grants from the council, because she pays rent, which are to cover the periods of lockdown, when the property was closed.

Her income has gone up in 2020/2021 because of the business grants, but this won't be repeated next year. Where is this type of income reported in the tax credit claim? My client has received a tax credit reminder, where she is just being asked to check details. Are the grants to be counted as just self-employment income for the year? And more importantly will they affect the tax credit calculation for the coming year?

I know this is a situation peculiar to the pandemic. I am worried about a large overpayment of tax credits, though funds have been saved to cover this, and I'm also worried about a removal of future tax credits altogether.

Any advice would be appreciated. Thank you.

bibescu
Posts:22
Joined:Tue Sep 21, 2010 9:33 am

Re: Effect of council business grants on tax credit claim

Postby bibescu » Mon May 17, 2021 4:13 am

Hi,

The grant is classed as business income and should be recorded in the accounts and it is a taxable income for the sole trader. Accordingly, the profit resulted will be counted for the tax credit.

Lsp54
Posts:82
Joined:Tue Sep 15, 2009 5:11 pm

Re: Effect of council business grants on tax credit claim

Postby Lsp54 » Mon May 17, 2021 10:44 am

Hi, Thanks so much for replying. Yes, the small business grants are to be taxed as business income. But I was thinking of the mechanics of the working and child tax credits claim, both for 2020/2021 and the assessment for 2021/2022.

Due to the one-off nature of the property council Covid grants I wonder if there is a mechanism for discounting these for next year's calculation.

I have found this pdf which says the Small Business grant could be disregarded for 12 months for Universal credit purposes (see paragraph 3.4 on page 2). Does this apply to tax credits as well?

https://www.legislation.gov.uk/uksi/2020/522/pdfs/uksiem_20200522_en.pdf

Thanks for helping.


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