Set up as Ltd - wage v dividends and effect on tax credits

(14 Posts)

I feel v uncomfortable at mo.
DH has gone from sole trader to Ltd, he bought into a business, and things are starting to look up.

We've been receiving child tax credits for 2 DC, our income was around £36-38k per year, with high childcare costs.

In theory we will now be richer, he will definitely earn more, but will be paying himself the lowest wage to tax threshold and the rest in dividends.

Surely this is also income as far as tax credits are concerned? He seems to think not (according to new accountant).

I'm not sure what to tell hmrc! I don't actually understand our new circumstances and have no idea how much 'we' now earn.

TalkinPeace2 Tue 04-Dec-12 20:42:28

income is income, no matter what the source
so income for tax credits is salary plus dividends plus any rental income etc
www.hmrc.gov.uk/taxcredits/start/claiming/income-hours/other-income.htm
www.hmrc.gov.uk/taxcredits/start/claiming/income-hours/index.htm

if the accountant really said that dividends do not count, change accountant

RedZombie Tue 04-Dec-12 20:45:46

The form asks for income from employment and desperately for income from dividends. To all intents it will be the same amount as you declare now.

RedZombie Tue 04-Dec-12 20:46:58

*seperately

So if he fills up the kids trust funds, or an Isa or pension, is this still income under that dividends category?
Should I ask tax credits for a new long form?

Thanks by the way!!

MrAnchovy Tue 04-Dec-12 20:55:48

There are some "advisors" (I will not call them accountants) who set up schemes where owner managed companies make payments that are not treated as dividends. I won't give any more details, but suffice it to say that if it feels wrong it probably is.

RedZombie Tue 04-Dec-12 21:25:54

I'm no expert by any stretch but my understanding is that if you take money out of the business it's dividends, no matter what you do with it.
Excluding legitimate business expenses obviously, like If you pay for something out of your personal account then 'pay' yourself put of your work account.

MrAnchovy Tue 04-Dec-12 21:44:01

"I'm no expert by any stretch but my understanding is that if you take money out of the business it's dividends, no matter what you do with it."

You may be thinking of drawings in the context of a self employed business.

For a Company it is only a dividend if it has been declared as such by the Company in accordance with its Articles (and may not be treated as a dividend by certain tax provisions unless the appropriate voucher has been issued).

Here are some other ways a person may receive money from a Company:
- payment for goods or services
- payment for a contract of service (employment)
- payment as an office holder (director's fee)
- a loan from the Company
- repayment of a loan to the Company
- interest on a loan to the Company
- reimbursement for expenses incurred on behalf of the company
- damages settling a loss in contract or in tort
- repayment of capital
- theft

PermaShattered Tue 04-Dec-12 22:09:45

MrAnchovy what do you mean "if it has been delared as such by the Company..."

I'm the sole director/shareholder and my accountant just says he'd split my 'income' between salary to the extent there's no income tax, rest as dividends so that it will only attract corporation tax....

Picturesinthefirelight Tue 04-Dec-12 22:13:53

I'm paid minimum wage plus dividends

I have to declare all income on my self Assesment.

MrAnchovy Wed 05-Dec-12 10:44:03

@PermaShattered if HMRC come to inspect they will expect to look at the minute books and see records of decisions to declare dividends in accordance with the Articles, as well as appropriate entries of the shareholding in the members register and dividend vouchers as evidence of the notional tax credit.

Perhaps your accountant is going to take you through this sometime before the first dividend.

PermaShattered Wed 05-Dec-12 21:16:21

@MrAnchovy, that means nothing to me sad My accountant just said on the phone to me, take out money and when he did the accounts he'd split it between salary and dividends. Nothing said about Articles, vouchers, etc. So it's literally just money gone out of the account, and entered into accounts as 'dividend'. I'm seeing accountant tomorrow anyway...

MrAnchovy Wed 12-Dec-12 23:23:04

What did he say? A similar topic came up in conversation today - from April 2013 it is going to be even harder for an owner/shareholder to take money out of a company and worry later about whether it is dividend, salary or loan account because Real Time Information requires HMRC to be notified of most salary payments on or before the day they are made.

While it is possible (although probably fraudulent) to write up backdated dividend vouchers and sole director's decisions after the event, you can't forge an RTI submission.

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