In the past, in order for a principal caregiver to
receive an in-work tax credit there was a
requirement for the person to be a full-time earner
receiving income from a work activity such as
salary, wages, or a shareholder-employee salary.
However, legislation passed last year has changed
this. Assuming other requirements are met to
qualify for the in-work tax credit, a person no
longer has to receive “income from a work activity”.
Rather, the person will now qualify if they are a
major shareholder in a close company in which
they are a full-time earner, and the company
derives gross income in the income year.
This change resolved a common problem that
arose when shareholder employees did not draw a
salary from ‘their company’. Because they weren’t
receiving income from the company, they were not
entitled to the in-work tax credit even though they
were working actively in the business.
Going forward, the company’s income (or a
proportion of it depending on the number of the
person’s shares in the company) is taken into
account to calculate the amount of the credit.
This change has retrospective effect from 1 April