TPP Your Questions Answered February 26

Our clients’ 25/26 taxable income projections are as follows:

25k Location

Bank interest 10 thousand

Gross Loan note interest 15k

3K Stops at tax

Dividend 5k

Roughly ended up with a Tax bill of around 8k minus 3k – so paid 5k.

If he invests 20k into EIS shares this tax year, can he assign a tax credit of 6k against the 8k liability? i.e. you can pay off these obligations with the income earned from these sources.

If a qualifying EIS investment is made, a 30% income tax deduction can be claimed. Making an investment of £20,000 means a tax reduction of £6,000.

Based on your figures, this amount will be deducted from your £8,000 tax bill bringing the total amount payable to £2,000 for the year. Since he has already paid £3,000, he will get a refund of £1,000.

He cannot reduce the total responsibility to less than zero. For example if he invested £30,000, with a tax deduction of £9,000, this would only reduce his tax bill from £8k to £0, it wouldn’t result in a loss/refund beyond that so the rest would be wasted.

If he releases the EIS investment within 3 years then income tax will be deducted again and must be repaid.

I had a client whose income was over £100k so she made pension contributions to supplement her income so she was entitled to 30 hours childcare.

I won’t use the exact numbers but I wanted to check. If he earns £110,000, he then makes a physical cash contribution of £9,000 by 04/05/2026; His adjusted net profit is £110,000 – (£9,000x 1.25)= £98,750. The cost is under £100k so he still qualifies for 30 hours of childcare.

I’m sure this is true but last year he got a call from the childcare officer and the calculation they did was £110,000-£9,000. They do not add up pension contributions.

Please can you confirm that my understanding is correct?

We can ensure that your understanding of your client’s adjusted net profit calculation is correct.

Eligibility for 30 hours of free child care is based on an individual’s “adjusted net income” as defined in Section 58 of the Income Tax Act of 2007.

If a person makes personal pension contributions based on a relief agreement at source (eg SIPP), tax relief is given based on the gross amount of the contributions. Since adjusted net profit is calculated with reference to net profit, the reduction in pension contributions is a reliable gross amount, not the net amount paid physically.

Therefore, a net pension contribution of £9,000 is treated as a gross contribution of £11,250 for the purposes of calculating adjusted net profit.

If you have questions similar to the above or would like to know more about our Tax Partner Pro membership, please email us enquiries@etctax.co.uk