New to Contracting - Question about Tax Credits

[bigup]

hi all

New to the world of contracting

Been with my current employer for last 9 years, on a standard paye scheme, i claim child benefit and working tax credits, I have 3 children and a wife who cares for the children full time.

I am wanting to start contracting (IT sector via Agencies) as an LTD and was wondering how this works out with my tax credits

I normally get a annual letter in the post and i have to declare my income and the tax credits gets worked out.

As contracting isn't guaranteed work for the year and swapping between a few contracts throughout the year, how difficult does this make working out tax credits?

i aim to appoint a accountant , would they be able to sort this out for me?

[TheCyclingProgrammer]

Won't your tax credits be based on your total income, i.e. any salary and dividends you draw from YourCo?

[northernladuk]

Yes your accountant will be able to do this for you. Just make sure you ask them about the first years Self Assessment return as not all accountants include this in the first year costs so takes some people by surprise.

[Support Monkey]

When you receive your child tax credit form it asks you to put in your income from employment so you enter what you have been paid PAYE which presumably will be Minimum wage (you want to make sure it is at least minimum wage otherwise they start asking questions about why your on less than the legal amount)

Also on the Form there is a section for other income which is where you enter what you have been paid via dividends

[Anoncoward]

Does anyone do this? I'm wondering how it's worked out

Posting to an old thread I know. I've only just seen that this is a possibility. I'm in a similar situation to OP, I'm wondering how this has worked out for people. For me, my Limited's income in very up and down, I might have a good year, in which case I retain more money in the business, but take an income that would qualify me for a small amount of tax credits (have just been on the calculator), in other years, I might not bring as much into the business, but continue to pay myself as previously. It looks like I'd have to pay myself NMW, which I'm not quite doing now.

If anyone has done this, any problems with the retained profits in the business for when times are a bit lean (relatively!). Do you need to have a contract of employment with your limited?

Anon

[northernladuk]

You need to speak to your accountant. A number of things in that they should be able to correct /clarify.

[chopper]

I am wanting to start contracting (IT sector via Agencies) as an LTD and was wondering how this works out with my tax credits

As there are some caveats, gotchas and legislation which could see you banged up in some Cuban jail if you artificially depress your income and retain money in the business without a good business reason in order to qualify for tax credits.

[Support Monkey]

I did this many years ago when I started contracting, I paid NMW and small amount of dividend, one year I paid more dividend and ended up paying back the credit overpayment.

There was never any questions asked about money left in the LTD account, I just figured its the companies money not mine so of no concern, I always put my LTD down as the employer and the address is the same as my home address so they could have checked\questioned it but they never did.

Like I said its a good few years ago so you probably need to read up on it

[radish2008]

I thought this was income based - so if you earn over £60k a year you get nothing - or you can take the tax credit but have to pay it back at the end of the year.

I would have thought if your contract is worth more than £60k and you claim you would be on extremely thin ice.

[Lance]

If you're a LTD co contractor you presumably reckon you're outside IR35.
If you are, but not paid enough such that you can get tax credits then you're quite junior. And therefore likely to be under D&C.

That's my chain of thought when I see this sort of question. Is it worth raising the attention of HMRC? It sounds risky to me. You might be outside but attracting attention doesn't seem wise.