30 hours entitlement confusion

[chancerprancer]

Does anyone know - I work 18hrs pw DH is full time so I thought we would be eligible for the 30hrs when Dc turns 3.

But things recently changed with DH' work. He is now a 'partner' and doesn't get a salary which he is taxed on, but instead had 'drawings' from the company equivalent to what his salary pre tax used to be before he was a partner. He describes these as technically a loan.

He is not taxed on these 'drawings' but I believe that if the company makes a profit he might have to pay tax retrospectively. On the other hand if the company goes bust he could have to pay back the money.

Now I'm concerned that as he isn't paying tax on earnings now he might not meet the minimum hours/earnings requirement of the 30 free hours.

Does anyone know how this works?

[nannynick]

I think he needs to clarify things with the accountant.

He could have a small salary paid which would could be sufficient to pay National Insurance thus qualify for State Pension. The amount could be kept within his Personal Tax Allowance so there would not be any Income Tax. As he is then getting a salary, that would then meet the £120 per week requirement.

Personally I would avoid any sort of loan... you don't want to be getting paid money that you might have to pay back. I would suggest he looks at Dividends. Dividends are taxable, he would declare them on his self assessment.

I don't know company tax law, so please get him to seek professional advise. I would be asking the accountant exactly how this partnership works and what options there are given that you need him to have a salary.

[nannynick]

Not sure if this is of help: www.gov.uk/running-a-limited-company/taking-money-out-of-a-limited-company

[chancerprancer]

It is confusing. I don't think they can be dividends because they're not making enough profit for that. (
Yet)

[Kapoor]

Hi, sounds like he is will be classed as self employed, with his taxable income being his share of the profit the business makes, and his earnings will show on his tax return (even if minimal tax is actually due). He should speak to the firms' accountants to understand how it all works.

He might not need to earn the approx £120 per week in this case as HMRC Say

"This earnings limit doesn’t apply if you’re self-employed and started your business less than 12 months ago"

[chancerprancer]

Ok thanks, I hadn't seen that bit about the earnings limit. It's less than 12 months now but will be longer ago when my daughter is 3.
I don't think they are making any profit at the moment.
He has wealthy bosses who are basically bank rolling it while they get established then they think they will go into profit at some point and then hopefully sell on the business.

It may well be best to just leave it at the 15. Also morally maybe it's better as his 'drawings' take him over the upper threshold and when he was salaried we wouldn't have been eligible for that reason.

[hiimnew]

Ah ok - that makes sense!

Though if I was in that situation I would still claim the 30 hours if at all possible - even if it was for a very short period until no longer eligible. I'd say it's morally fine, as at that income level (over upper threshold) your DH has paid a LOT of tax and will do in future when his firm make a profit. Childcare is expensive and I would want the governments contribution as much as possible.

[JoJoSM2]

Hiimnew, I don't think it's morally ok as it's stealing from the state. The rules for free childcare specifically exclude people on 6 figure salaries. Just like high earners don't get tax free personal allowance and are very limited in what they are allowed to save for pension etc. That's how tax works - get tons from high earners to support low/no earners. Hoe can it be ok to blatantly cheat it?

OP, if he's a partner in the business now, then there should be a profit share, or gross income, and taxes calculated every year? Wouldn't you're eligibility be based on the latest tax return? And it's a partnership and not a limited company so different.

[hiimnew]

JojoSM2 - of course I understand your point.

OP's DH wouldn't be able to claim if not eligible so can't cheat the system, I just think that if there is a short period where he is eligible because income/profits (as per tax return) are less than £100k then there is no harm in claiming the 30 hours for a short time.

I am however assuming they are marginally over the theshold and not super earners otherwise the question wouldn't have been asked in the first place