Tax breaks for business mums

Mothers who start their own businesses can face a host of financial pressures. Fortunately, the taxman can offer a helping hand with tax credits and a tax-free savings scheme for eligible children

Becoming self-employed can give you the flexibility to both work and care for your children, but getting a business off the ground will put you under financial strain: there is equipment to buy, stock to purchase, professional services to pay for - not to mention the cost of extra childcare.

As a working mother, however, you may well qualify for both Child Tax Credit and Working Tax Credit - the latter incorporating help with childcare. The state provides extra financial help in the form of a Child Trust Fund, a tax-free savings account for your children born on or after 1 September 2002.

Child Tax Credit

Paid in addition to any Child Benefit you receive, Child Tax Credit is available to parents with at least one dependent child, and you can claim it even if you are not working. The amount you receive depends on your income, the number of children you have and whether any of your children has a disability.

This tax credit is made up of a number of elements, including a 'family element', paid to any family responsible for a child; and a 'child element' for each qualifying child. The elements you receive depend on your circumstances and household income. Couples can earn up to £58,000 a year jointly and still be eligible for tax credits, rising to £66,000 if they have a child less than a year old.

The basic family element is £545 per year, which increases to £1,090 a year if your baby is under one. Depending on your household income, up to £1,845 a year can be paid for each additional child.

Working Tax Credit

Working Tax Credit is extra financial support for workers on a low income, including income from self-employment. If you have children you must work at least 16 hours a week and be over the age of 16 to qualify.

An important element of Working Tax Credit for working mothers is the 'childcare element'. This can help with up to 80 per cent of your 'approved' childcare costs, up to a maximum of £175 a week for one child and £300 a week for two or more children. Approved childcare costs may include a registered childminder, nursery or play scheme or an out-of-hours club on school premises.

Calculating income and hours

For both kinds of tax credit, your income from self-employment will be treated the same as PAYE employment. If you trade as a limited company with yourself as director, your gross income is calculated as the salary you pay yourself, plus dividends. If you form a partnership, your income is simply your share of the partnership's profits.

You don't have to provide evidence of your working hours or your income when you apply, although you may be asked to do so later on. Self-employment hours can be irregular, and if your hours vary from week to week you will be asked for an average.

Child Trust Funds

Although it will not help directly with your immediate costs, a Child Trust Fund can provide a tax-free savings scheme for each of your children, to mature when they turn 18. All children born after August 31 2002 qualify for a £250 voucher which you can place in either a savings or an investment account.

Children in families claiming Child Tax Credit with a household income of less than £14,495 will receive an extra payment, and the Government makes a further £250 contribution to all children when they turn seven. You can also add up to £1200 per year to your child's trust fund out of your own income, to ensure they have a solid financial foundation at the start of their adult life.