How do directors who have low/salary/high divs manage to claim tax credits as well?
As dividends have to be declared as part of income this puts most high earners out of the bracket to be able to claim, yet I have heard that many do. Can anyone shed any light?
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Jenny
Responses are my opinion based on the information provided. All information should be thoroughly checked before being relied on.
Dividends should be declared as income for tax credits. You just have to make sure that you don't intentionally surpress dividends in order to make your earnings lower and therefore qualify for higher tax credits.
The ones that forget to declare their dividend income are, of course, doing it wrong.
NB the self employed can also do things to boost their tax credit awards, such as investing in plant and machinery (van anyone?) or paying into pension schemes.
Surely supressing dividends would be pointless anyway as it's the only (other) way of getting money out of your company, so in that case you'd be getting the tax credits instead of drawing money out of the company and it'd just be sitting there building up. Ohhh...
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Jenny
Responses are my opinion based on the information provided. All information should be thoroughly checked before being relied on.
Apart from the fact that if the money is in the company at year end you pay corporation tax on it. Declaring the dividend prior to year end but not actually paying it out still counts that the dividend has been paid so tax credits would be reduced accordingly.
As Nick states. Directors claiming tax credits whilst hiding their true income are doing it wrong. I would go beyond that and say that they were defrauding the country and what they are doing is illegal. I certainly would not condone or be party to such practice.
However, also note that there are many directors who actually make next to nothing from their companies espechially in this day and age where every penny goes into just keeping the business afloat and not having to lay their staff off. As such they are genuinely entitled to tax credits as why should a directors family suffer where any other type of employee's family would not.
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Shaun
Responses are not meant as a substitute for professional advice. Answers are intended as outline only the advice of a qualified professional with access to all relevant information should be sought before acting on any response given.
Tell me about it, I'm one and I've had a couple of absolute breadline years. 2005 was the worst one for me.
My big problem with being a director and tax credits is the fluctuation on our salaries.
For example, one year you might earn £6k the next you could bring in £30k and the one following back to £6k. However the tax credits system is always playing catch up and you never really know where you stand or how much money you are actually entitled to.
One strange thing that I find is that there is no need to inform them of a change of salary unless your salary increases by more the £25k so even in the above example there was no need to inform them until the annual review that things had changed and then it's factored in by the time you actually need the money when you're back on £6k again!
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Shaun
Responses are not meant as a substitute for professional advice. Answers are intended as outline only the advice of a qualified professional with access to all relevant information should be sought before acting on any response given.
The tax credits system does need to be more 'real time'. As you say for people with changing incomes, and the self employed, there is an opportunity to get in a complete mess with it, and you don't often end up with the money when you really need it. Perhaps this will all be addressed with the new Universal Credit...
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Jenny
Responses are my opinion based on the information provided. All information should be thoroughly checked before being relied on.
Scrap tax credits, increase the personal allowance instead and let couples with only one person working transfer their tax allowance to the working partner. You would save the country money by not having to employ as many administrators to run a stupid system of taking with one hand and giving back with the other and create other jobs for them by one member of a couple being able to afford to stay at home to look after children (if that's what they want to do but can't currently afford).
Semsley, it really makes you wonder how on earth people managed before tax credits. I completely agree, it removes the incentive to better yourself. As you earn more, not only are you taxed and NI'd, but you lose tax credits at the rate of 39p in the pound.
