Newly self employed and near a tax credit threshold - help needed

motherofpearl_2

We both work part time, and last year we earned £14913 between us and qualified for free NHS dentistry etc.

I have just gone self-employed, but still on a part time basis, and I have to estimate my earnings for the year for our tax credits return. My partner will earn marginally more than he did in the last tax year. I was going to estimate my earnings at about £11,000, but that would put us just above the magic £15,050 where the NHS help runs out. Given the state of my partner's teeth, that could mean a big jump in our expenditure.

I have been employed up until now, but haven't been in a pension scheme since 1997. None of my income as a sole trader falls into the 2007/08 tax year.

That's the background, my questions are:

1. If we estimate at less than £15,050 and earn more, will we have to pay back the cost of free NHS care?
2. Can I bring my earnings back down to keep us below the threshold by making a strategic pension contribution at the end of the tax year?
3. Would I be making that contribution as an employee, as my income from self-employment won't have been assessed by then?
4. Would a contribution from income earned as an employee be deductible from my taxable income?

Thanks!

Mr_Taxtastic

The Tax credit renewal form asks for details of last years income (so 2007/08). This is then the amount they use for calculating your 2008/09 award.

You have stated your income will be higher in 2008/09 but for tax credits any increase up to £25,000 is ignored in calculating your award.

You will have to tell them your estimated income for 2008/09 but as long as your income for 2008/09 is less than a £25,000 increase over 2007/08 it will not affect your 2008/09 award.

If your income was below the NHS limit for 2007/08 I am assuming on past dealings they will send you the exemption cards for 2008/09. I can not say if they will make you pay it back or how they would put a value on it if they did.

Pension contributions do decrease your income for tax credit purposes.

Hope that makes sense, but basicly tax credits are based on the previous years income, so any thing you do in 2008/09 will only affect your 2009/10 award.

Regarding your self employment I assume your start date was after 6/4/08 otherwise some of it will be in 2007/08.

Personaly I would send the renewal forms in, then call them and let them know you estimated income for 2008/09. If I remember you have 3 months to notify them of any changes.

Hope that helps