child / working tax credits awards and your accounts

[chris79]

I'm a parent of 1, I run my own limited company, my girlfriend is the co. secretary, we have a 50/50 share in the company.

Every year the government looks at what we've made in the previous financial year and based on the figures decides to award us with some help in the form of child tax credits and working tax credits.

The threshold is £15k, so whats to stop me just paying myself and my girlfriend our minimum wages, a few expenses, a small dividend, and as if by coincidence we happen to have earned just under this for the financial tax year?... This then attracts about a £6000 handout from the government based on our annual household income.

If the taxman asks about funds in the company I can say I'm building the company up? Nothing to stop me splitting a large dividend the following tax year between myself and my girlfriend as a means of releasing the built up company profits?

Just a thought, not to say I'm going to do it, but sitting reflecting on the situation in hand I thought how easy it would be to abuse the system to do this?

[TheFaQQer]

Can't see anything stopping you paying what you want.

When the forms come back for tax credits, you need to declare what you have earned or received as a dividend. Based on that, they tell you what your tax credits are worth.

[chris79]

Can't see anything stopping you paying what you want.

When the forms come back for tax credits, you need to declare what you have earned or received as a dividend. Based on that, they tell you what your tax credits are worth.

Yes I've just done last tax years so I can see how it all works... It makes me wonder though that the system is wide open to abuse by anyone running their own limited?

[ASB]

Yes I've just done last tax years so I can see how it all works... It makes me wonder though that the system is wide open to abuse by anyone running their own limited?

There is scope to manipulate the system if you choose to do so. In the year in which I stopped contracting and went permie I paid myself nothnig from MyCo. I was only working permie for 5 months permie. This gave me an income entitled me to some tax credits (previously it has always been nil).

Now, I also told them next year my salary would be > than the maximum. Apparently 25k of any increase is disregarded for one year so in year 2 I still got a chunk of tax credit. This year I don't.

So I think the following would maximise you tax credit:-

Year 1 - Draw 15k. Full Award.
Year 2 - Draw 40k. Still full award due to the 25k one year disregard
Year 3 - Draw 15. Full Award

etc.

See section 3.3 of this document:-

http://www.hmrc.gov.uk/si/2006-draft...ng-em-regs.pdf

I discovered this quite by accident since I had done my tax credit thing on line (stopped now). It was only when the award didn't change that I tried to figure out why.

It's a weird system....


.

[chris79]

It's an interesting situation indeed... if I chose to pay between us just under £15k income for 07/08, and have funds in MyCo bank account for 'business reasons', then I don't see how they could do anything about it?

I guess its also down to whether you can live off £15k a year, but with savings/flexible mortgages/etc it's not so much of an issue?

[Old Greg]

It's an interesting situation indeed... if I chose to pay between us just under £15k income for 07/08, and have funds in MyCo bank account for 'business reasons', then I don't see how they could do anything about it?

I guess its also down to whether you can live off £15k a year, but with savings/flexible mortgages/etc it's not so much of an issue?

You could always get the Ltd. to provide you with a Director's loan (which my accountant says is very naughty).

[ASB]

I guess its also down to whether you can live off £15k a year

No it's not. It's down to whether you can live off what you current do and how you split it to gain the most from the 25k disregard. Ok, you'll need more discipline in the "high paying year" to keep some of the cash back for the next year when you will only get 15k. But what you could do is vote the dividend in the company and have it sit on the directors current account until you actually pay it in a later year - the relevant date is the date at which you become entitle to the divdend not necessarily when it is physically paid.

There is huge scope to manipulate, I gained about 3k completely by accident.

[chris79]

I think this year I would like to see my company grow at the expense of some personal sacrifices. I wonder how my girlfriend is going to take the news that she's going to get less money whilst I 'grow' the business.

[Number9]

I'm in the same boat, had a LTD for just over a year now.

Partner with 1 child under 1, She is still working part time

I pay myself 5k per year and take the rest as a div.

The tax credits have been paying us £600 per month, which I have placed in a saving account because I'm sure its wrong and will have to pay the money back.

Partner very worried but we haven't fibbed on any of the forms

I asked my accountant and he said not my field you need a personal accountant not a company accountant.

Hopeful when I do my year end accounts this will be all sorted

[r0bly0ns]

The tax credits have been paying us £600 per month, which I have placed in a saving account because I'm sure its wrong and will have to pay the money back.

very wise.
During my first year in business I was honest and open iwth the tax credit's agency.

They said that they could not take expected earnings into account (dividends) so could only work off guranteed earnings (salary).
So they kept paying our tax credits.
I filled in the forms at the end of this tax year, including dividends recieved, they sent me a nice letter saying they had overpaid me and would claw it back by not giving me any tax credits for the next 3 years.

Suited me as it meant I could keep what I had saved over the last year to pay them back with