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Tax Credits (Another question)

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    #11
    Have you thought about asking HMRC?
    Originally posted by Stevie Wonder Boy
    I can't see any way to do it can you please advise?

    I want my account deleted and all of my information removed, I want to invoke my right to be forgotten.

    Comment


      #12
      I think you would be hard pushed to claim that borrowing money from the company in January to March as soon as it started was for any purpose other than avoiding tax.

      Now that may not be a problem but once you add on the fact you continued to receive tax credits while potentially misrepresenting your actual income that becomes a rather different (potentially criminal) matter.
      merely at clientco for the entertainment

      Comment


        #13
        Originally posted by tractor View Post
        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.
        Should be clear, that was not the intention of taking the money in this way - I was not expecting the tax credits to continue, Ive not applied for them, this is a continuation of the credits from previous years, I am completely fine if they stopped today... All I was asking was how do I declare that income properly on the form.

        Which has been answered by an accountant now - I don't, it goes on the next form they send and Ill probably owe them some money.

        Having worked out exactly what I took last year in salary and the money taken as directors loan, my income was actually slightly LESS than it had been the year before anyway.

        Originally posted by tractor View Post
        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.
        While you may be/probably are right about that, Im not sure why they would be concerned about this? as long as the tax is paid when the dividend is declared to pay off the loan?

        If anything its actually been detrimental to me tax wise the way I've done it because if I had declared a dividend last tax year it would have been 100% in the basic tax rate... the way I've done it is very likely going to put at least some of it in the higher rate this year...

        To clear up, What is the better option, declaring a dividend every month or keeping the directors loan account in debt and paying it off with a dividend maybe once a quarter/at year end?


        -------------------

        Having seen other posts on here I suspect that we are about to reach a tipping point where the thread descends into abuse by people who thing that I'm trying to game the system.. I am not, I am simply asking advice as someone who is relativity new to this and wants to do things right..

        Comment


          #14
          ...

          Originally posted by eek View Post
          I think you would be hard pushed to claim that borrowing money from the company in January to March as soon as it started was for any purpose other than avoiding tax.

          Now that may not be a problem but once you add on the fact you continued to receive tax credits while potentially misrepresenting your actual income that becomes a rather different (potentially criminal) matter.
          Whilst it is acceptable to take frequent loans, even on a monthly basis, there is precedent for HMRC to 'deem' it as salary and tax it accordingly and in those situations, I don't believe they will accept 'converting' the loans to dividends retrospectively. Quite right too.

          Should that happen it puts the tax credit claim in a different light too as says.

          Comment


            #15
            ....

            Originally posted by David Barrett View Post
            Should be clear, that was not the intention of taking the money in this way - I was not expecting the tax credits to continue, Ive not applied for them, this is a continuation of the credits from previous years, I am completely fine if they stopped today... All I was asking was how do I declare that income properly on the form.

            Which has been answered by an accountant now - I don't, it goes on the next form they send and Ill probably owe them some money.

            Having worked out exactly what I took last year in salary and the money taken as directors loan, my income was actually slightly LESS than it had been the year before anyway.



            While you may be/probably are right about that, Im not sure why they would be concerned about this? as long as the tax is paid when the dividend is declared to pay off the loan?

            If anything its actually been detrimental to me tax wise the way I've done it because if I had declared a dividend last tax year it would have been 100% in the basic tax rate... the way I've done it is very likely going to put at least some of it in the higher rate this year...

            To clear up, What is the better option, declaring a dividend every month or keeping the directors loan account in debt and paying it off with a dividend maybe once a quarter/at year end?


            -------------------

            Having seen other posts on here I suspect that we are about to reach a tipping point where the thread descends into abuse by people who thing that I'm trying to game the system.. I am not, I am simply asking advice as someone who is relativity new to this and wants to do things right..
            HMRC don't care if you did not maximise your tax advantage last year. That is your problem and you should have asked your accountant for advice at the appropriate time.

            HMRC do care if you are intentionally deferring tax whatever the reason. It is the effect that they are interested in.

            If you ask yourself the right (HMRC) questions, you will come up with the answers we are giving you.

            If you had paid the money you took in loans as wages, would you have paid more in tax/NI for the previous year? Would you have been entitled to less Tax Credit during that period?

            If you had paid the money you took in loans as a dividend, would you have been entitled to less Tax Credit during the period?

            As for your question which is the better option; Only you can weigh up the options according to risk/need/personal circumstances. We are only telling you from experience how HMRC might look at it if you are inspected. You can argue with them if you wish but good luck with that.
            Last edited by tractor; 18 June 2015, 12:47.

            Comment


              #16
              Originally posted by eek View Post
              I think you would be hard pushed to claim that borrowing money from the company in January to March as soon as it started was for any purpose other than avoiding tax.

              Now that may not be a problem but once you add on the fact you continued to receive tax credits while potentially misrepresenting your actual income that becomes a rather different (potentially criminal) matter.
              Utter rubbish, people jumping on the moral bandwagon, like many other benefits and the tax system in general if the system allows people to "work it" then the system needs changing

              Borrowing from your company is no different from borrowing from Barclays bank, its a loan that has to be paid back nothing more, the reason you borrowed it is neither here nor there

              On the tax credit form you enter your salary (PAYE)after the salary details is a box entitled other income if you took dividends or any other earnings you put the amount there. a loan is not income\earnings so therefore would not need entering.

              Next year when you then declare a much higher income (if you pay more dividend) then you will get considerably less credit

              Comment


                #17
                Originally posted by Support Monkey View Post
                Borrowing from your company is no different from borrowing from Barclays bank, its a loan that has to be paid back nothing more, the reason you borrowed it is neither here nor there
                Sadly that is not how HMRC see it and it is how HMRC see it that people need to think about....
                merely at clientco for the entertainment

                Comment


                  #18
                  Originally posted by Support Monkey View Post
                  Borrowing from your company is no different from borrowing from Barclays bank, its a loan that has to be paid back nothing more, the reason you borrowed it is neither here nor there
                  I am not sure Barclays would give you an interest free loan
                  Originally posted by Stevie Wonder Boy
                  I can't see any way to do it can you please advise?

                  I want my account deleted and all of my information removed, I want to invoke my right to be forgotten.

                  Comment


                    #19
                    When I first started contracting (many moons ago so things might have changed - YMMV), I was in a similar position.

                    The first 6 months I didn't take any dividends or loan, just a 1k a month wage. I used credit cards for the rest.

                    I phoned the tax credit helpline, told the truth and added that I expected to earn considerably more after that.

                    They told me they could not take expected future earnings into account, only known earnings could be considered, and that dividends of a company I owned are expected.

                    As such, they awarded us over 800 per month!
                    We put it in a savings account and gave it back to them the next year when dividends had been declared and they 'decided' we'd been overpaid....

                    Long story short - phone them, tell them the truth and do what they advise.
                    No way it can come back on you then.
                    But if you do earn more than expected, they will ask for it back.

                    Directors loans are no more income than using a credit card, but when you declare the dividend to pay off the loan, it becomes income and goes in the 'other income' box.

                    These days we structure it so we have no outstanding directors loans at tax year end if at all possible, makes it much simpler for stuff like this.
                    Still Invoicing

                    Comment


                      #20
                      Originally posted by eek View Post
                      I think you would be hard pushed to claim that borrowing money from the company in January to March as soon as it started was for any purpose other than avoiding tax.

                      Now that may not be a problem but once you add on the fact you continued to receive tax credits while potentially misrepresenting your actual income that becomes a rather different (potentially criminal) matter.
                      The company started in october, I did freelance alongside my perm job and took NOTHING from the company OCTOBER-DECEMBER, I then had enough work coming in that I was able to quit my perm role in December.
                      So I didn't take a loan from the company as soon as it started..

                      As for your second statement, I took less from the company in January -March than I would have been paid in full time employment during the same period.

                      For the record today I have spoken to two accountants, one my own accountant and another who is completely independent of me/my company/my accountant AND HMRC and their advice has basically been the same, it wasn't income, it was a loan which doesn't need to be declared on the form for the 2014/15 year, it will go on the 2015/16 as a dividend which will may mean that Ill owe them some money next year, which Ill happily pay back - as I said, Im not after gaming the system and getting something that we are not entitled to.

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