Working Tax Credits - Self Employed and Director Issue!

[jaffajeo]

I have a question chaps (and i appreciate the help and advice you offered before.)

Im registered self employed, and a director of a limited company (controlling share). I work many hours and claim working tax credits.

The entirety of my income comes from invoices for specific commissions to produce art projects over a short duration. (My income for this minus expenses is below the old personal allowance.)

However about 80% of those invoices were to the company I am a director and 20% of them I made directly to the client. Of that 80% (invoiced to the company) about half of it was due to the client requiring a company account to fascilitate the cash - i digress...

And so
So now I have a compliance check and it seems that I may have errored in how i was supposed to report my income.

What I did was add my total income (derived from self employed invoices) and deducted my self employed expenses. That is the figure (and my huge number of hours, i report to WTC)

However... this is when i get totally confused.....

As I have learned, that 'automatically' my invoices to a company I am a director of will count as 'wages' that should have been entered seperately in my SA to my self employed earnings.

Without a contract of employment a director is not required to be paid NMW (necessary for me) but apparently that work is excluded from WTC applications?

I reported working over 60 hours a week for WTC (which i do and yes its not very profitable but...) and i am not afraid of my honestly kept records, but am concerned of the implications to my past WTC payments from this issue as having to pay aaaall that back... would not be good

Can i ask for advice, tips and how any of you might deal with this issue?

I am thinking (though it would seem a stretch at first) that my hours might still qualify my past rewards) even if my self employed income is reduced?

[cojak]

Can i ask for advice, tips and how any of you might deal with this issue?

I'd get an accountant to sort it out for me.

[northernladuk]

I'd get an accountant to sort it out for me.

Totally this. You are dealing with some pretty high level and complex questions and haven't even gotten further down the chain yet. It sounds to me that a good accountant is actually gonna make you money here so there is no reason to not go find one pronto. Remember we are free and generally don't give a monkies so not really the best basis for advice for your lively hood.

[Wanderer]

Agree 100% with what the others said. Get an accountant or someone who specialises in tax investigations on the job. If you start bumbling through it yourself using half cocked advice from us then you will say something wrong and get caned by the tax man. A decent advisor will tell you what you've done wrong (if anything) and get this settled quickly and efficiently with the minimum amount of stress. He will also keep HMRC on the straight and narrow and stop them going off on a fishing trip to pick holes in your tax affairs.

[bless 'em all]

Am I right in thinking that you've neglected to tell the WTC people of the income derived via your Ltd Co?

If so your undeclared income will be taken and used to re-calculate your entitlement to WTC, if my memory serves me right this can easily be done for past-years as well as this year.

Reporting 60 hours really doesn't make a difference, the boundaries are/were 30 and 20/16 hours per week.

If, after the re-calc has taken place, you OWE HMRC rather than they owe you, and they feel you've failed to declare some income they WILL ask you to re-pay the money and CAN charge you penalties of up to 100% of the money you've gained in this way.

Don't worry though, you'll get 45 days to re-pay it before they send the boys round.

[blacjac]

As I have learned, that 'automatically' my invoices to a company I am a director of will count as 'wages' that should have been entered seperately in my SA to my self employed earnings.

Where have you 'learned' that from, sounds utter rubbish to me.
What a limited company that I am a director of turns over has no relation whatsoever to my earnings...
The dividends said limited company pays me are declared in the 'other income' box.

[Safe Collections]

Where have you 'learned' that from, sounds utter rubbish to me.

And us. You and the Limited company are two completely separate legal entities.

Have you tried your local Welfare Rights office? They are normally useful in these situations

[jaffajeo]

Well I had my compliance check and it 'seemed' to go okay during the personal meeting and interview.

My self employed work constituted a lot of entrepenerial attempts to make money (not reflected so much in my income) which was mostly derived from jobs I did for the limited company for which I am a director (without a contract of work, not on paye.) My earnings from those commissions were reported with my income from self employed (jointly) on my self assessment.

And yep I also claim WTC (though they assess what I may recieve at a maximum of whatever hours - I always just told them the truth, that i worked as many as 60 on my projects.)

So the figures I had given them seemed fine (during the visit) but they queried whether 'really' the work I had done (with my invoicing of the company) did not constitute me being (for tax purposes) and employee. Like I guess an IR35 issue perhaps?

blacjac
I didn't neglect to report any of my income but i included any invoices to the company I am a director along with my own invoices direct to other clients as my overall turnover (with normal deductions applied.)

My concern and confusion was under what circumstances HMRC might take my income (of which 80% was through invoices to the company) and try to suggest it was 'wages' and what kind of ramifications that might have to my reported hours for WTC. As their seemed to be huge confusion even with the hmrc staff whether or not a director could work hours outwith NMW and so forth (though in my mind i was doing it as SE for that company.... hrmph....)

The sums involved are modest (my SA income was about 9.5k) and i was never paid dividends or anything like that from the company.

- At the moment im waiting for my closure notice? (any idea how long these can take?) Atm (in my position of ignorance) im not wanting to find myself seeing that reported turnover thrown through a normal PAYE process (or anything exlcuding the expenses) or disallowing hours reported for past WTC entitlements.

Atm I feel compelled to become a regular employee (with NMW) and ending my SE... and or ceasing to be a director in the company?

Anyway guys any suggestions or thoughts?

[blacjac]

blacjac
I didn't neglect to report any of my income but i included any invoices to the company I am a director along with my own invoices direct to other clients as my overall turnover (with normal deductions applied.)

Did your company pay every single penny it invoiced to you?
If not (which it shouldn't have done) then you have overstated your income.

It sounds to me like you don't understand the legal difference between you and 'your' company.
If the company invoices 1k, that is the companies income *not* yours.
If the company pays you 1k, then it is your income.

If the company invoices 1k, pays 100 to an accountant, 20 to PC world for printer ink and 500 to you, leaving 380 in the company account then your income is 500 and thats what goes on the tax return.

The company would then owe corporation tax on what is left over, but until the money leaves the company bank account and goes into yours then it is NOT YOUR INCOME.


The company does have its own bank account doesn't it?

[jaffajeo]

Hey blacjac thanks for answering.

Yep my company has a bank account. Im not sure what the confusion is though,

My personal income (for my self assessment) is a sum total of all incomes I've recieved. In relation to work (it includes me invoicing for time and expenses) to various clients, the predominate client (of that years income) however was my own limited company. This was the issue, as I can see IR35 issues for when self employed peoples are doing a lot of commercial work for a single client (so their considered an employee and that their earnings should be taxed inside IR35.) My concern was to what extent this issue is a problem for self employed folks invoicing their own limited company for work performed for clients.

As regards to my company and its income - thats reported and accounted for properly (ie. not by me but a professional accountant.) But the employment status was a concern for me if it would potentiall disallow self employed work and expenses I did in commissions for my own limited company.

I guess that was my query - sorry if i wasnt very articulate blacjac