Reply to: Claiming working/child/tax credits/other benefits by paying small salary/dividends?

[psychocandy]

Thanks for your replies. I worked out that on a total income of £15k (made up of salary and dividends) our household would be entitled to the following yearly benefits;

child benefit: £1762
child tax credits; £15907 (working and child)
council tax benefit: £1080
housing benefit: £11,313
plus free school meals, prescriptions etc.

Approx £30k

So add that to the £15k

Total income of £45k most made up of benefits

Are you sure these figures are right? Earn £15K and they make up your income to £45k?

By that rationale, every family in the country would earn £45K minimum....

EDIT: Just been on entitledto.co.uk

Family income of £20K with one child nets about £2500 per year.
Income of £23K nets £500 per year.
Income of £15K nets about £5500 per year.

Not worth the hassle IMHO unless you really can live on £20K per year.

Completely pointless if partner works. (My wife earns £15K p/t, so even if I paid myself £7K and zero divs, I'd get about £10 a week off the government).

Guess it might be worth doing if close to retirement. Do this for 3 years, pay hardly any dividends, then retire and pay yourself the dividends over the next 3 years.

[psychocandy]

Maybe, but you do have to declare your dividends as earnings on the annual review, so really, what is the point in keeping your income so low?

Exactly. If only salary were counted (which is isnt) we'd all be claiming it.

Might be a nice little earner in tax credits but then as NLUK says if you keep the money in the company its gotta come out some time.

Personally, I try to pay divs (for me and the mrs) up to upper tax bracket if I can. With me and the mrs, thats £40+k per year at pretty much 20% tax.

Surely, if you're tsking out only £20K thats a lot of unused allowance every year.

Must admit I was surprised that the benefits on £15/20K salary were so much. Hardly worth working is it?

Been thinking about this though and you sure it works like this?

Yeh. Cool if you can survive on £20K then let the government pay you extra. Surely not like £20L or something though?

[psychocandy]

Thanks for your replies. I worked out that on a total income of £15k (made up of salary and dividends) our household would be entitled to the following yearly benefits;

child benefit: £1762
child tax credits; £15907 (working and child)
council tax benefit: £1080
housing benefit: £11,313
plus free school meals, prescriptions etc.

Approx £30k

So add that to the £15k

Total income of £45k most made up of benefits

You get child benefit anyway as long as you're below higher tax rate.

[psychocandy]

been claiming it for the last 6 years no problem i pay NMW and then take dividends, if you earn around the 20 thousand mark its around £180 a month in tax credit, my son was also able to claim EMA for college when that was availble.

so it can be claimed and its based on earnings not profits, having said that my wife does not work but my overheads are minimal i can SURVIVE quite happily on that but then i am running around in a V plate renault Clio

so it all depends on if you think its worth it for the amount you can get and if you can live on that level of money.

and before we get the "its morally wrong Brigade harping on" my current contract see me regularly sitting in a building where the great unwashed and foreigners come to make there claims for benefits, a few hours in there and you will realise how people are taking the benefits system to the cleaners everyday, its the system thats in place thats at fault so work it to your advantage, everyone else does

So your saying you're only taking 20K per year out total - salary and div?

And your partner has no income either?

I assume then you're leaving the rest in the company?

[kingcook]

Interesting thread.

I wouldn't do the low wage + big benefits thing while i were in a current contract with a client, but it's something to consider if i ever faced long periods on the bench.

[Scrag Meister]

I did wonder about this with daughter off to uni this year. Decided my conscience wouldn't let me, but if others want to go for it, good luck to them!

No good luck wishes here.

People like this are as bad as those that won't work cos they are lazy.

Milking an already stressed system even though they are well funded.

My conscience wouldn't let me be such a drain on the public purse either.

For me to go and claim all these items I would have to be in a genuine situation where I knew I actually deserved and needed it rather than sponging by manipulating your otherwise healthy company figures.

Gotta be a sockie troll? Right? Doh!

[mudskipper]

I did wonder about this with daughter off to uni this year. Decided my conscience wouldn't let me, but if others want to go for it, good luck to them!

[Mr.Whippy]

Hi Mr.Whippy,

1. Must be a trading company (usually the case for your normal contractor ltd company);
2. You must be a director;
3. As a personal service company, you must hold at least 5% of the ordinary share capital and in which you are able to exercise at least 5% of the voting rights by virtue of that holding;

These conditions must be satisfied for at least one year prior to the company ceasing to trade.

Great, thanks for that

[Greg@CapitalCity]

What are the qualifying conditions for a rate of 10%?

Hi Mr.Whippy,

1. Must be a trading company (usually the case for your normal contractor ltd company);
2. You must be a director;
3. As a personal service company, you must hold at least 5% of the ordinary share capital and in which you are able to exercise at least 5% of the voting rights by virtue of that holding;

These conditions must be satisfied for at least one year prior to the company ceasing to trade.

[Mr.Whippy]

Yes, same rules apply. The usual capital gains tax rates, or if the qualifying conditions have been met, then the Entrepreneurs’ Relief capital gains rate of 10%.

What are the qualifying conditions for a rate of 10%?

[Support Monkey]

Thanks for your replies. I worked out that on a total income of £15k (made up of salary and dividends) our household would be entitled to the following yearly benefits;

child benefit: £1762
child tax credits; £15907 (working and child)
council tax benefit: £1080
housing benefit: £11,313
plus free school meals, prescriptions etc.

Approx £30k

So add that to the £15k

Total income of £45k most made up of benefits

Your getting ahead of yourself, child tax credit is one thing as there is nothing on the form about declairing profits but if you claim housing there is a much more stringent test they will almost certainly look into your earnings I would be very surprised if you can claim housing benefit as a LTD co director with money in the company

[Support Monkey]

Don't forget you still have to take all this money you have been 'hiding' in your LTD at some point so are going to get stung for tax at some point. If you let it grow too big and start breaking the next tax thresholds you could be looking at paying top rate tax because you didn't spread the payments better earlier on.

You are not looking at the bigger picture.

True but you can only claim FTC until the kids leave education so after this point you can revert back to taking as much money in dividends as you like

[Support Monkey]

Maybe, but you do have to declare your dividends as earnings on the annual review, so really, what is the point in keeping your income so low?

you have to declare any dividends taken, the less dividend you take the lower your earnings the more family tax credit

[Greg@CapitalCity]

Do we know what the tax rate for this would be? Same as Capital Gains?

Yes, same rules apply. The usual capital gains tax rates, or if the qualifying conditions have been met, then the Entrepreneurs’ Relief capital gains rate of 10%.

[northernladuk]

Not dead and buried, but it has become more expensive. Instead of sending a letter to the HMRC for ESC C16 treatment (for free), the contractor will need to pay for a members voluntary liquidation. I have seen prices around the £2,500 - £3,500 + VAT mark for this. By my estimation, if retained earnings exceed around £50,000, then the most tax efficient option is to go down the members voluntary liquidation route.

Do we know what the tax rate for this would be? Same as Capital Gains?