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AIBU?

To struggle with self employed friend who declares that income is low to avoid paying tax and get benefits

74 replies

ginorwine · 04/08/2015 18:11

Our old friends are self employed and were saying that they were upset as they may get benefits reduced . They said that they have kept income apparently low - but not really - so that they don't pay tax at all and get credits .
Dh and I were surprised and didn't say anything as taken aback .
He had told us that for a weekend job for eg he earns 800 pounds .
I really like them but this discussion has raised uncomfortable feelings for me .if everyone did this then how would the country run , benefits be paid etc . I find it I consistant with my beliefs that we should all muck in together .of course I know this goes on and at much higher levels . I'm finding it an elephant in the room in our friendship as I find it wrong but they are lovely people . I'm not saying I'm perfect God forbid ! But this feels a deal breaker to me on my moral compass .
Has anyone had an issue with friends which they have found hard ? And did it affect things ? I can't key this affect the friendship yet I feel angry .
It's not that they are trying to make ends meet .they only work couple of days a week . Have relaxed lifestyle it seems but the benefit cut s may alter this .

OP posts:
ginorwine · 04/08/2015 18:18

I feel that this is like getting someone else to fund a relaxed lifestyle when they could be honest and money could be given to whose need is greater .
I pay hefty tax and am glad to .
I just cdnt do this . This is not a green eyed monster I promise !

OP posts:
lougle · 04/08/2015 18:20

It's a benefit of being SE that you can take a low salary to maximise tax efficiency.

Spartans · 04/08/2015 18:22

It's not quite as simple as take a small wage but really draw more. Because when you do your end of year taxes, yet would end up having to pay tax on what they have taken as extra wages. The taxman will want to know where the difference is.

Do they take it as dividends?

RealityCheque · 04/08/2015 18:23

Are we talking about lying on the declaration or legal tax avoidance?

They are very different beasts.

ginorwine · 04/08/2015 18:24

What do you mean take a low salary? Maybe I've misunderstood .
WHere does the rest of the salary go then ? If you take a ten grand salary but earn 30 , then where does the 20 grand go if it's not salary ?

OP posts:
OTheHugeManatee · 04/08/2015 18:25

Whenever someone posts to complain about someone else's financial affairs I believe it's traditional to say wind your neck in and mind your own business, you don't know what her circumstances actually are etc etc etc.

At least I sincerely hope that applies to suspected tax avoiders as well as suspected benefit fraudsters.

ginorwine · 04/08/2015 18:28

What is legal tax avoidance ?
I may , I hope , misunderstood .
Basically they earn around 30 but the taxman is told about ten I think .
I don't know the difference between legal t tax avoidance choice and non legal stuff if someone can explain ?

OP posts:
Sallyingforth · 04/08/2015 18:30

He had told us that for a weekend job for eg he earns 800 pounds

If he declares it for tax, that's fine.

If he hides it from tax, that's wrong.

If he then claims benefits, that's very very wrong.

Personally I would shop him. I pay my taxes to give benefits to people who really need them, not to thieves like that. And I couldn't continue to be friends with him.

Spartans · 04/08/2015 18:30

Basically if your friend tells the tax office he takes £10k a year as a wage, but actually takes £20k for example.

The business will be taxed on that 20k. When he does his end of year returns he will have to assign the 20k to a different expense. He can't just not declare it. Well he can but if he is investigated he will end up being prosecuted.

Or are you saying he takes cash I. Hand pretends he didn't earn it.

I don't tell people to mind their business, no idea what other people do.

NoArmaniNoPunani · 04/08/2015 18:31

If you take a ten grand salary but earn 30 , then where does the 20 grand go if it's not salary?

Dividends. It's not clear from your posts whether you are talking about legal tax avoidance or illegal tax evasion.

ginorwine · 04/08/2015 18:31

Other - they are telling us this sitting next to us in the pub .i had no wish to be told anything .it didn't cross my mind to even bring the subject up .
After I felt awkward and feeling blerg a few days later .wish I'd not been told tbh .

OP posts:
OTheHugeManatee · 04/08/2015 18:34

Tax avoidance and tax evasion are different. Tax avoidance is the rational and IMO perfectly acceptable practice of optimising your application of legal loopholes and provisions, so as to minimise your tax obligations. Tax evasion is lying about your earnings, or hiding them in some illegal manner, in order to achieve the same result. One is legal, the other is not.

If the couple in question is minimising their obligations using legal routes there is nothing wrong with what they are doing. If they are just lying about their income, that's reprehensible. My point, though, was about the ostentatiously non-judgemental way anyone posting about an acquaintance's benefit fraud is told to wind their neck in; I just wondered whether the same enthusiasm for giving the benefit of the doubt would apply on MN to someone suspected of tax evasion.

OTheHugeManatee · 04/08/2015 18:35

FWIW I think fraudsters of both types should be brought to book.

RealityCheque · 04/08/2015 18:39

Manatee.

Tax AVOIDANCE is not fraud. It is legal and sensible. For example, at its simplest a self employed person may be able to reduce his tax bill by claiming relief for a room in his house where he works.

Why do you call them a fraudster?

Spartans · 04/08/2015 18:39

It sounds to me like youI not really know.

And I suspect they are tax avoiding. For example if he runs his business from home, the business can rent the office space, effectivly paying the mortgage. . Or some of the mortgage. Totally legal. He could be counted that towards his wage.

But he isn't doing anything legally wrong.

I take a small wage from our business. Because all our profit is reinvested in equipment at this point.

What benefits is he claiming? Working tax credits? Or is he actually lying and claiming other benefits?

sounds like tax avoidance to me. But it's perfectly legal

ginorwine · 04/08/2015 18:40

I'm sorry if I'm not clear but I don't understand if it's tax evasion or avoidance .all he said was that he deliberately keeps his registered earnings low to Tay no tax and to get tax credits .
I know , as he told me , that that go for days out and go to cafes and put these down as expenses .
Which he seems happy to say he does as well as the tax thing .
I'm wondering if he's cross because my dh had just got promotion . We don't discuss money ourselves voluntarily , and it had just occurred to me that he may imagine we are a lot better off and may be cross . ? So he may be pointing out whist dh is a suspected high earner . He's not . He may be paying a lot of tax .so telling us he does not pay any . I'm getting all over anylitical now !
Anyway ! How can a business person choose not to pay tax legally or otherwise ?

OP posts:
squidgyapple · 04/08/2015 18:42

I've come across ppl who are self-employed and have an income that works out as min wage type levels - rest is dividends, and they are therefore entitled to tax credits. I've not looked into the ins and outs of the legalities of it (and not exactly sure what dividends are) but I assume it is a legal loophole give that I've come across more than 1 person who has done it.

SchwarzwalderKirschtorte · 04/08/2015 18:42

I wouldn't do anything but withdraw from being friends if it upsets you so much. There are many allowances and expenses that you can apply against your gross when self employed that you may not be aware of if you're employed, all perfectly legal but somehow annoying to people who are not self employed. If their figures don't add up then HMRC will catch up with them anyway -ie claiming high expenses for materials but the money declared for the work is negligible they will investigate.

ginorwine · 04/08/2015 18:42

Spartans . Wtc ctc

OP posts:
atticusclaw · 04/08/2015 18:44

There's a big difference between on the one hand taking £30k out of a business and fiddling the books so that it looks like you've only taken £10k and on the other a perfectly legitimate situation where you are taking only £10k and leaving £20k in the business (assuming its a limited company).

I have money in my company. It belongs to the company not to me. The Company is a separate legal entity to me. The Company will pay corporation tax on it in the year that the profit is earned but I can't access it until I pay myself salary or declare a dividend. I don't want to take it this year because I don't want to pay top rate tax on it. If I leave it sitting in the business until I'm retired and a basic rate tax payer and then take it out either by paying myself a salary or by declaring a dividend, I will minimise my tax liability since I'm spreading that potential income out over different tax years. Its basic tax planning (although negates to some extent the benefit of limited liability).

However it sounds like your friends might not be declaring their income - that's unlawful.

Spartans · 04/08/2015 18:44

Why would he be angry?

I would say he is doing it legally. Although family days out are a bit iffy.

It's not about choosing not to pay tax. It's about running a business. There is a fine line between tax avoidance and evasion. This years most of our profit will go on building a new factory, which we need. Without it the business can't grow and employ more people, which is what we want.

I am not spending the money on anything I fancy, just to evade tax. It's a business decision.

tabulahrasa · 04/08/2015 18:44

For tax credits it's not actually done on income, so paying yourself I dividends doesn't make a difference. It's worked on end of year profits, whether you've actually taken that profit as income or not.

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OTheHugeManatee · 04/08/2015 18:45

Reality I didn't call tax avoidance fraud. Read my post - I distinguished between tax avoidance and tax evasion. I was calling benefit fraudsters and tax evaders both fraudsters. Apologies if that was not clear Smile

Pilgrimforever · 04/08/2015 18:46

We pay ourselves a combination of wages and dividend. We have to declare both when we do our tax credit forms.

TabithaMcKitten · 04/08/2015 18:46

Dividends are still included in the income for tax credits - I believe it is under the 'other income' category - and HMRC can and do check that it all matches up. They would avoid paying tax on the dividend component of their income, but it wouldn't be disregarded in calculating tax credits.

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