The latest Clay Shaw Butler Money Matters column from the Carmarthenshire Herald

The latest Clay Shaw Butler Money Matters column from the Carmarthenshire Herald.
By Mark Jones, director of Carmarthen-based Clay Shaw Butler chartered accountants and business consultants.

Many of you will think that watching and listening to the political party conferences is a bit like a visit to the dentist.
But there are occasions when they are almost required viewing.
This party conference season it’s been worth watching everyone wrestle with the thorny question of tax credits.
The tax credits system is changing in line with changes outlined by the Chancellor of the Exchequer George Osborne in his summer Budget.
But you probably need a degree or a PhD in the subject to properly understand the tax credits issues.
In its latest Tax Credit Guide, the consumer group Which? says it is "virtually impossible" for people claiming tax credits to work out what they are entitled to.
The debate on the impact of planned changes is hardly making it any clearer, but we will attempt to provide some clarity.
How are tax credits changing?
At present, people receive the maximum level of tax credits if their annual household income is below a threshold of £6,420.
From April, that income threshold will go down to £3,850.
So, when household income goes over £3,850, tax credits start to be withdrawn for every extra pound earned.
Tax credit entitlement for those with an income of above £3,850 will be taken away quicker as their income rises.
In technical terms, the taper rate will change from 41% to 48%.
In addition, claimants whose household income increases by up to £5,000 during the tax year currently have that rise ignored when entitlement is calculated for that year.
From April, this will be reduced so that any increase in income of more than £2,500 will be taken into account.
In a year, there will be further changes (just to keep everyone on their toes!).
Any family which has a third or subsequent child born after April 2017 will not qualify for more child tax credit.
How do you know if you are affected?
Letters are being sent out to claimants to explain the changes to their entitlement.
That, according to benefit advisers, will be the moment of reality for many people - especially those who are not following the news particularly closely.
In the meantime, there is a tax credit calculator available for claimants, run by HM Revenue and Customs, which administers tax credits.
This can be found on the website -
What should claimants do now?
The reality for many people is that there will be a "black hole in their budget" in April, according to Lee Healey, managing director of benefits adviser IncomeMAX.
"People have six months, so now is the time to prepare," he says.
He suggests that people bear in mind that the calculation of their tax credits is likely to change, so they need to alter the calculations in their household budget.
One way to prepare is by ensuring the annual tax credit renewal pack - which checks all income and personal details are correct - is returned as quickly as possible, Mr Healey says.
Overall, will claimants be worse off?
Anyone receiving tax credits with a household income above the new threshold of £3,850 will receive less in tax credits from April than they do now.
Whether they will actually be worse off is at the heart of the current debate.
Mr Osborne says that the rising minimum wage, tax changes, the introduction of the National Living Wage and entitlement to free childcare will actually mean the vast majority of families will be better off.
The government wants to reduce tax credit spending and says that measures - most notably increasing the level of earnings that are free of income tax - will help to compensate.
Groups, such as the Resolution Foundation think tank and the independent Institute for Fiscal Studies (IFS), basically make two key points to counter the chancellor's argument.
Firstly, all the Budget changes do not come into effect at the same time. For example, the most significant cuts in tax credits take effect in April, but the point at which the National Living Wage hits £9 an hour will not come until 2020.
Secondly, Mr Osborne's "typical family" fails to make it clear who are the winners and who are the losers. For example the Resolution Foundation points out that the National Living Wage compensates only 13% of the lost income faced by the poorest 50% of households following the Budget.
"We estimate that 'a standard' tax credit family - a single earner couple with children - must be at least £985 a year worse in 2016," the think tank says.
Research by the IFS says that 8.4 million working age households, with someone in paid work and receiving benefits or tax credits, will lose £750 a year, and only gain £200 a year from the National Living Wage.
Carwyn Jones, the First Minister of Wales, has said that the National Living Wage will not compensate for the loss of tax credits.
You can find out more about money matters on the new-look Clay Shaw Butler website (under our news for business section) -
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