Notional Income/Deprivation of Income or Not?

bujin

Haven't posted for a while but I wanted to further a thread started by another post. In the other thread, the op states how they want to contribute to an additional Pension and realises that their entitlement to WTC would increase. I'm not suggesting their only intent is to benefit from this increase and it would simply be to benefit from the additional Pension but anyway. I wondered if someone has done this and had no reprise. The confusing thing is it seems there might be a problem REG15;
Reg 15 of The Tax Credits (Definition and Calculation of Income) Regulations 2002 is headed "Claimants depriving themselves of income in order to secure entitlement" and reads as follows:
"If a claimant has deprived himself of income for the purpose of securing entitlement to, or increasing the amount of, a tax credit, he is treated as having that income."


However this statement is also from WTC Technical Manual. They seem to negate each other, somewhat. I suppose the only sure way of knowing is writing to them. Anyway it states;



TCTM04003-Income:General Deductions4003 -
Allowable deductions from the total income are;....."the amount of any contribution made by the claimant, or in the case of a joint claim, by either or both of the claimants to a registered pension scheme together with the amount of any tax relief due on those contribution".


So what do people make of that? I'd really like to know. I'm going to write to them anyway, but am just interested.

Elaine_Wilson

Right, this is very much a personal opinion but I do not believe that Reg 15 applies in this situation.

Reg 15 applies when a claimant deprives himself of income. But as you describe the situation the claimant has received all the income to which he is entitled. No deprivation has taken place so there is no need for deemed income.

What he has done is to spend some of this income in such a way that a deduction from income is created. There appears to be nothing to disallow this.

For the record I have made two payments of £3,600 into a personal pension plan, leaving a year with no contribution in between. This generated effective tax relief of 96% and 98% and has not been queried. I may make a further payment later this year now the effective rate of relief is now 102%.

Colin4May

Hi Bujin.

I'm having similar issues with HMRC. But I did find their helpline quite helpful and knowledgeable. I guess it's just who happens to be on line. My issue was resolved re: Nat Insurance contributions, because I was made compulsorily redundant, so I get a rebate!

bujin

Thanks for your responses. It is certainly a tricky one. I think you are probably right Elaine, in that you aren't exactly depriving yourself in the real sense because as you say you do receive it. The fact that the facility exists, that you can contribute some or all of your earnings, is actually investing your earnings as opposed to depriving, as you will be living off those earnings and not the state at a later date.

Your example with your contributions is an interesting one too.

I have composed a letter and have asked for a written response and won't do anything until then. I'll post back if and when I get a reply.

nad1611

I'd be really interested to hear how you get on as I'm in a similar position and I don't want to do anything wrong.

Pennywise

Paying into a pension won't trigger the deprivation rules. Pension payments (within the official limits) aren't regarded as tax avoidance/evasion for income tax nor tax credits.

The rules are there to stop people being dishonest or artificially taking actions to reduce their income in a dishonest/fraudulent way.

It's not different to you simply deciding to work fewer hours to reduce your income and increase your tax credit award - perfectly acceptable practice.

bujin

Thanks pennywise. Yes on the face of it, it's obvious really because otherwise any amount of pension contribution could be seen as depriving yourself of income otherwise.
Problem is, I hear something from someone, who's well meaning ie, "that it could be seen as notional income/deprivarion etc",but they don't really know what they're talking about and it starts you distrusting your own understanding of something.
Thanks again.

taxing

Perfectly legal and done all the time by those with fluctuating incomes and with the help of their accountants - usually, they pay a large pension contribution every two years so keeps their income low for TCs.

Regards.

jimmo

bujin wrote: »

Thanks pennywise. Yes on the face of it, it's obvious really because otherwise any amount of pension contribution could be seen as depriving yourself of income otherwise.
Problem is, I hear something from someone, who's well meaning ie, "that it could be seen as notional income/deprivarion etc",but they don't really know what they're talking about and it starts you distrusting your own understanding of something.
Thanks again.

If you want chapter and verse look here.
http://www.hmrc.gov.uk/manuals/tctmanual/TCTM04803.htm

bujin

I will be coming into a large sum of money very soon and can invest over £50,000 of it into something long term and keep some to be available for emergencies etc. I have looked at some of the top interest rates paid, one Bank of London and The Middle East offers a Profit rate as opposed to actual interest. Can anyone xplain how this works as it all new to me or can people suggest any other accounts which would fit the bill.

I can invest for 5 years and shouldn't need to withdraw and I will be over 50 very soon, if that helps. I literally want to make a smuch interest on it rather than it providing an income or the like.Thanks

Voyager2002

bujin, please start a new thread rather than jumping into a different conversation.

The 'profit' rate you mention is offered by an Islamic bank, because Muslims are forbidden by their religion to receive interest.