Is there a rule for tax credit purposes that an individual must claim all capital allowance available when they are a sole trader and claiming tax credits? I have been advised by the tax credit helpline I must claim the capital allowances in full if I am claiming tax credits. I know there are thedeprivation of income rules, so I could only guess that if you didn’t claim the allowances one year you would then be choosing to have lower income next year by making that decision. 

Arthur Weller replies:
If you look at HMRC’s Tax Credits Technical manual (www.gov.uk/hmrc-internal-manuals/ tax-credits-technical-manual/tctm04004), you can see it states: ‘For Tax Credit purposes, ‘taxable profit’ has the same meaning as it has in Part 2 of the Income Tax (Trading & Other Income) Act 2005 (ITTOIA). That is the amount after the deduction of allowable business expenses.’ There is no mention of rules about capital allowances claims. Furthermore, in the section that refers to ‘deprivation of income’ (TCTM04801 to TCTM04805), it states (at TCTM04803): ‘The claimant may have more than one reason for disposing of the income, only one of which is to obtain tax credit or more tax credit. Securing or increasing entitlement to tax credit may not be a claimant’s main motive but it must be a significant one.’ I would suggest that you are not obligated to make full capital allowances claims