Tax Credits (Another question)

[Snarf]

Evening all.

Got the annual review for tax credits through this morning and Im not 100% sure about filling it in, Ive emailed accountant but though someone may be able to offer some advice before he gets back to me.

Basically this is the situation:
Partner works 16 hours a week £9k(ish) a year.
I worked full time until December (Set up own Ltd and started trading in october)

Because I did not take a wage from my company (and did not take any dividends - Between December and April Ive had a directors loan account (Below £10k) which has had a few k a month added to it.

So in short my wages between April 2014 and April 2015 were only 3/4 of what they would have been for the full year and as far as I am concerned that was my only income as the DirLoan will be repaid when I declare a Dividend at some point in the future.

So my question:
When filling in the form do I just need to declare the wages?
The other side of this is that as it stands we will get some tax credits (As my wage looks low, my wifes wage was low and we get DLA for my son which adds a bit onto the tax credit...) my concern with this is that if we go ahead and only add on the wages, when I declare my dividends later in the year and do my Tax return Ill end up owing HMRC overpaid tax credits...

Best calling HMRC to discuss or does anyone here have any experience?

Thanks

[SueEllen]

Does it say income or salary?

If it says income you need to put in dividends.

[Snarf]

Does it say income or salary?

If it says income you need to put in dividends.

It has boxes for both, but that's the issue, I didn't take a dividend in the 2014/15 year, I took some money as a Directors Loan, but that will be repaid, so I don't think that it needs to be declared?

Obviously WHEN I do declare a dividend then it becomes income and Ill declare it - Im ignoring that though as that will be the 2015/16 tax year, this form is for 2014/15

[SueEllen]

You are aware that deliberately paying a low income to gain tax credits is against the law?

So while you are OK to make a protective claim, what you are doing with a directors loan will come back to bite you in more ways than one. It will also definitely muck up the amount of tax credits you can claim for the next tax year.

I suggest you talk to your accountant.

[SueEllen]

BTW if you are posting under your real name contact an administration and get it changed.

[Snarf]

You are aware that deliberately paying a low income to gain tax credits is against the law?

So while you are OK to make a protective claim, what you are doing with a directors loan will come back to bite you in more ways than one. It will also definitely muck up the amount of tax credits you can claim for the next tax year.

I suggest you talk to your accountant.

I'm speaking to the accountant tomorrow.

With regards to making an illegal claim I am aware of that, that's the point of my question, I want to make sure that I declare everything that they want/need to know about - I know that this will likely put an end to the payments - I was expecting that (This isn't a new claim its a continuation of an old one and they have asked us to check the details they have are correct).

Im just looking for advice on how to deal with the situation that has come up from me not declaring a dividend within the tax year in question.
It seems to me that as its a loan and not income if I put it on the form for the 2014/15 tax year Ill end up declaring it twice as Ill be declaring a dividend to clear the loan later.


Ill speak to the Account tomorrow and probably phone HMRC to get their take on it, Ill post and let you know what the advice is...


Final question (Sorry), in what way is the way that I am using the directors loan wrong?
It seemed like a sensible way to get money out of the company without declaring a dividend every month? If its wrong then Ill add this onto the conversation with the accountant as I have likely misunderstood a previous conversation that I've had.

Thanks for taking the time to reply

[SueEllen]

While there is nothing wrong with using a directors loan but using it as away not to pay yourself a wage is opening up a can of worms with tax credits.

If your declaration is looked at more thoroughly the inspector will be interested in why you worked 16+ hours a week and didn't earn anything...

So yes using a directors loan is fine but not if you are claiming any means tested benefits/credits.

Oh and don't phone HMRC as someone may cotton on and claim you have deliberately tried to defraud the system.

[Snarf]

While there is nothing wrong with using a directors loan but using it as away not to pay yourself a wage is opening up a can of worms with tax credits.

I think that there has been a misunderstanding here, my income from the 2014/15 tax year was from a salary that I received as a permanent employee of another company, its not that I have deliberately underpaid myself. The only period where I didn't have a salary was Jan-March 2015 which is the period where I took the directors loan.

With regards to the directors loan and not paying myself a wage... Thats not what I'm doing at all, I'm simply using it rather than declaring a dividend every month - the loan will be paid back and the appropriate tax will be paid on the dividend when that happens

If your declaration is looked at more thoroughly the inspector will be interested in why you worked 16+ hours a week and didn't earn anything...

So yes using a directors loan is fine but not if you are claiming any means tested benefits/credits.

Tax credits are based on the previous years wage though aren't they - during this time I was in full time *permanent - tax paying* employment for 80+% of the year.

Oh and don't phone HMRC as someone may cotton on and claim you have deliberately tried to defraud the system.

Which is clearly not the case because the whole point of my question was to ensure that we declare everything that we need to so that we don't get paid anything that we shouldn't be getting.

You seem to be approaching this from the angle that I am trying to defraud the system/claim something that we are not entitled to, which is actually the opposite of what I'm trying to do - I want to make sure that we dont inadvertently get too much.

[tractor]

.....

I think that there has been a misunderstanding here, my income from the 2014/15 tax year was from a salary that I received as a permanent employee of another company, its not that I have deliberately underpaid myself. The only period where I didn't have a salary was Jan-March 2015 which is the period where I took the directors loan.

With regards to the directors loan and not paying myself a wage... Thats not what I'm doing at all, I'm simply using it rather than declaring a dividend every month - the loan will be paid back and the appropriate tax will be paid on the dividend when that happens



Tax credits are based on the previous years wage though aren't they - during this time I was in full time *permanent - tax paying* employment for 80+% of the year.



Which is clearly not the case because the whole point of my question was to ensure that we declare everything that we need to so that we don't get paid anything that we shouldn't be getting.

You seem to be approaching this from the angle that I am trying to defraud the system/claim something that we are not entitled to, which is actually the opposite of what I'm trying to do - I want to make sure that we dont inadvertently get too much.

I'm not going to get into the morality of the 20% of the year where you took loans instead of wages/divis thereby increasing your entitlement to tax credits. That's another matter.

The part that I have highlighted above would be of great interest to HMRC who would no doubt say (if they were in possession of your post) that the only point of the loan transaction is to defer payment of tax/NI and they would frown upon it. They would likely treat the money as payment 'at the time the money was available to the recipient' rather than loan and charge it to tax and likely penalties and interest too.

[TheFaQQer]

The part that I have highlighted above would be of great interest to HMRC who would no doubt say (if they were in possession of your post) that the only point of the loan transaction is to defer payment of tax/NI and they would frown upon it. They would likely treat the money as payment 'at the time the money was available to the recipient' rather than loan and charge it to tax and likely penalties and interest too.

Well it's not like he's used his own name on a forum that's looked at by HMRC, is it?