Originally posted by i-am-ltd
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http://forums.contractoruk.com/592701-post14.html
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You probably have found this out by now but in case not once you put your child into childcare you can use childcare vouchers upto £55 per week to save on tax and NI etc, this post here seems to contain all the right pointers....
http://forums.contractoruk.com/592701-post14.html -
Quite an interesting post Dude69.
One of the advantages I think in paying a low wage is that if you ever find yourself 'on the bench' so to speak for a while through choice or not, it means that the funds in your company would keep you ticking over topped up through tax credits, in effect a bit of a security blanket there?
I almost see this as a possible means of early retirement if you were able to live off the calculated sums and accumulate enough funds in your business account.
Not that I'm suggesting a life on benefits is a morally correct thing to do, but exploring the options here it's certainly something not to simply dismiss when it comes to financial planning in terms of security.Leave a comment:
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Just doing a bit more investigation into this. Bit aggrieved at the 'income shifting' rules.
Here's the rules, disregarding any disabilities :
Child benefit: not means tested, make sure you are getting paid it for all of your children. No brainer
Child tax credit:
Family element - £545/year per family, unless under 1 year old in which case it is £1,090/year
Child element - £1,845/year per child
Working Tax Credit:
Basic element: £1,730/year (maximum one per couple)
Couple's and loan parent's element: £1,700/year (maximum one per couple)
30 hour element: £705/year (maximum one per couple)
Child care element: 80% of childcare paid, up to £175/week (80% * £175 = £140 max) for care of one child, or £300/week if more than one child cared for. Both partners must work to claim tis.
Hence:
for one child, with no child care, the maximum benefits are:
£545 + £1845 + £1730 + £1700 + £705 = £6,525, or £7,070 if they are under 1 year old
and with two children
£545 + £1845 + £1,845 + £1730 + £1700 + £705 = £8,370, or £8,915 with an under 1 year old
Your income is then related to the Personal Allowance. You lose 37p in the pound for each pound above £5,220 in 2007-08.
Above £50k/year, you can only clame the £545 family allowance (£1,090 if you have a baby). This falls by £1 for every £15 above this level.
Sooooooooo:
For one partner earning £5,220, with no other income:
1 child: £6,525/£7,070 with baby
2 children: £8,370/£8,915 with baby
For two partners earning £5,220, you lose 37.1% = £1,931.40 of benefits.
If the second partner does not get paid you pay 21% in Corporation Tax on that money. If you eventually distribute via capital distribution, then that works out as 28.9%minimum tax payable. In other words, the second salary costs you at most, £422.82, in lost benefits.
Given the 37.1% tax rate on any income, it doesn't make sense to earn anything more than £5,220/year (remember that you are allowed unlimited capital for tax credits). This is true even though dividends come basic rate tax paid - you are effectively paying 37.1% tax on them. If you distribute income via dividends higher rate tax, then the rate would be 25%. And via capital distribution, only 10%.
There is really therefore no rational reason to earn any more than £5,220/year if you can help it. If you HAVE TO get more than this, then the marginal tax rate for the second income is only 9%, and you get the NI stamp for your spouse, so this would be the way to go.Leave a comment:
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Without doubt.Originally posted by hugebrain View Post
The company's money is not yours.
On £10,000/year: £6,610 for two people.
You can get extra money on top of that to pay for childcare/nursery school.
For some reason tax credits are not assessed on your savings - you can have unlimited capital, they only means test income.
So for example, if you need £30,000 per year to live on, then you can get out roughly £5k income for you plus same for spouse, plus £30k in dividends from next year (new rules on income shifting mean no dividends for spouse). To take out 2 years' income, would require another £20k dividend, which would require payment of £6,666.67 in income tax.
In the next tax year, you would then receive £10k, plus £6,610 in tax credits.
So by comparison, taking out £30k/year in both years in dividends:
Y1, salary paid = £10k, company profits = £56,667 post corporation tax, dividend paid = £30k, retained profit = £26,667
Y2, salary paid = £10k, company profits = £56,667 post tax, dividend paid =£30k, retained profit = £26,667
So total salary = £20k + dividend of £60k = £80k received, with retained profit of = £53,334
vs.
Y1, salary paid = £10k, company profits = £56,667 post corporation tax, dividend paid after tax = £50k, retained profit = 0
Y2, salary paid = £10k, company profits = £56,667 post tax, dividend paid = £0, benefits received = £6,610, retained profit = £56,667
Total salary = £20k + £6,610 benefits + dividend of £50k = £76,610 received, with retained profit = £56,667
So it works out roughly the same on the basis of paying out an extra £20k dividend in year 1, and living off benefits in year 2. If OTOH, you have more substantial savings, sheltered in income tax-free means, you would not need to pay out the dividends, the 25% tax on which quickly offsets any tax credits payable.
If you can just live off the £16,610/year that two salaries plus benefits would pay you.
E.g.,
Company makes £30k year Post-tax Profit, and pays 2 * £5k salaries.
After 5 years, you have received £50k in salaries, £33k in benefits (at a minimum), and the company has £150k left. Pay it out as a capital gain (doesn't affect tax credits), and you have £50k + £33k + £123,000 (new 18% tax rate) = £206,000 received
Cf.:
paying it all out every year = £40k/year in salaries * dividends. After 5 years, zero left in the company, and you have received £200,000. So you are £6,000 worse off over 5 years. Which is not huge really.
The current 10% CGT is obviously more favourable - it would leave you £18k better off on benefits.
I have no doubt that there are company directors doing legal and not-so-legal schemes to claim tax credits, not to mention th e armies of fake claimants and general chavscum that don't even bother working, just claiming.
I think other benefits are means tested though, so the other advantages of being on benefits - free museums, bus travel, prescriptions, etc, might not be available.
Some of them would be though.Leave a comment:
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Yes you get Child Benifit.
The other 2 are means tested - if you go to the HMRC website you can get a "quote" on-line of your entitlement.Leave a comment:
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Benefits & Ltd Company
Dear All,
Like many on this forum I am IT contractor working through my own limited company. I own 100% of the shares and take £24,000 pa and I employ my wife to the admin work and pay her £5,225 pa. We are expecting our first child shortly and I would like to know for which child & tax benefits we are eligible for.
Child Benefit
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I think this is paid to all parents (not means tested). For the eldest child £18.10 per week, is it correct?
Child Tax Credit
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Families with children can claim Child Tax Credit if their income is no more than £58,175 a year (or up to £66,350 if you have a child under one)
So for the first year I can take £37,150 in dividends (£66,350 less our salaries (£24000+£5200).
So we can get £2,390 pa (family element £545 + child element £1,845) Is this correct?
Working Tax Credit
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I dont think we will qualify, but welcome your views.
Please comment. Thanks.
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