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AIBU?

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Original poster

WIBU to claim tax credits in this situation?

112 replies

dingledangledongle · 28/06/2018 18:41

I have never had tax credits before. I work part time and earn about £20K before tax. DH was employed in a high earning job (over £100K pa before tax), taking home about £4800 per month.

He then became a partner in his business which is sort a fledgling venture and currently they aren't making a profit. He still gets the same take home monthly 'pay' but this is classed as a director's loan because if the company never gets profitable as far as I understand it, he could have to pay it back. Therefore as far as HMRC are concerned he is self employed earning nothing.

I think if the company does well then he will be taxed on it retrospectively but it will be as if he earnt that in one year - still the tax bill would be big and I think his company are keeping a portion back for this purpose in future if needed.

We live in a big house, bigger than we probably need. Apart from that I don't think we live an extravagant lifestyle but don't count every penny either. We are in overdraft at the end of each month because he earns significantly less than when we bought this house (used to get a big bonus). We have some savings but not loads because we've put a lot into the house.

We have three children (2 at school, 1 not yet). We have one summer holiday and normally go to DH's home country in the winter to see his family.

We stopped receiving child benefits when they changed the criteria to make it means tested. I recently started them again because as I say, my DH is not classed as earning anything.

I then checked and discovered we would be entitled to substantial tax credits, potentially £1000 per month plus.

WIBU to claim this? On one hand it doesn't sit well with me because I feel tax credits are aimed to help people who are struggling to cover the basics. On the other hand, if we have to repay this money, the 'directors loan' he is currently getting, in future, I would wish that I had claimed what we were technically entitled to.

One option is I could claim it and put it in a separate account.
I've had advice from a relative who is a chartered accountant who says there's nothing dodgy about it and if we are entitled to it I should claim it.

What do people think?

OP posts:
NameChange30 · 28/06/2018 19:05

“some savings but not loads”
How much are you talking? Your idea of some/loads might be wildly different from most people’s, if the rest of your post is anything to go by.

If his new company isn’t making a profit yet, why is he taking £4800/month? Whether it’s a loan or dividends or whatever it is, that’s money being taken out of the company. So either the company is making money to fund this “director’s loan” or the directors are bleeding it dry which would seem a bit silly.

Anyway. You clearly don’t need or deserve tax credits. You wouldn’t actually be eligible for them anyway and if you did manage to get them you’d just end up with an overpayment at the end of the tax year that you’d have to pay back.

If he’s earning £4800/month, you’re earning too, and you’re overdrawn at the end of each month with “not loads” of savings, you two must be seriously bad at managing your money. Sort that out. Don’t apply for tax credits FFS.

SoddingUnicorns · 28/06/2018 19:05

I guess what I’m trying to say is just because there’s a loophole doesn’t mean you should abuse it.

Curious2468 · 28/06/2018 19:05

Tax credits are a pain to claim, take time and effort to fill in and then fill me with worry that they will over pay us and we will have to magic up money we don’t have. I have no idea why you would claim this if you don’t need to. I also think the company loan thing sounds really dodgy and you know yabu to want to grab extra money from the tax payers on top.

IdLikeABiscuitPlease · 28/06/2018 19:06

How the fuck would you get £1000 a month??!

I don't even get £200.

Don't claim it.

ThisIsntMeHonestGuv · 28/06/2018 19:07

Where on earth is the money to your husband coming from, if the business isn't making a profit?

MinorRSole · 28/06/2018 19:07

Don't be so ridiculous. You have an income that is far higher than a lot of people who receive nothing. Tax credits are to top up insufficient earnings not help you maintain a lifestyle you can't afford.
You shouldn't be claiming child benefit either, just greed and selfishness.
I see so many people in genuine need every day and then read this bs, I just hope it's not real

TittyGolightly · 28/06/2018 19:09

He still gets the same take home monthly 'pay' but this is classed as a director's loan because if the company never gets profitable as far as I understand it, he could have to pay it back. Therefore as far as HMRC are concerned he is self employed earning nothing.

That’s dodgy as fuck.

Floridasunset · 28/06/2018 19:09

The fact you are even considering this makes you the most despicable person I've come across in a long time

WerkSupp · 28/06/2018 19:13

How the fuck would you get £1000 a month??!

You wouldn't. Never heard of 12 grand a year in TCs unless you're the Radfords. Even with a disabled child it's an extra grand or so per year, not per month.

BeeMyBaby · 28/06/2018 19:13

Earning 20k with 3 young children would probably get you about £300 unless you pay for childcare for your children which is why it may be substantially more. You could claim and then pay it back at the end of the year if your DH gets to keep his earnings as otherwise you would only be entitled to 3 months of retrospective payments. I don't think there is a problem claiming it and then returning it if you end up being over the threshold but possible cut back on the holidays and other expenses to make sure you don't accidentally fritter it away.

Original poster
dingledangledongle · 28/06/2018 19:15

Believe it or not I am not being goady or deliberately taking the piss.

If i applied I would be transparent on the form or even actually phone and ask them - but directors loans are not treated as income I believe.
My husband was advised how to fill out his tax return and didn't lie on it.

I would only consider claiming it because I'm concerned that in the future a few years down the line we might have to pay back all his monthly "income" for these years. If I had set aside the tax credit money in an account, it wouldn't really make much of a dent but I would worry that i would regret taking the moral high ground.

But i do appreciate the responses and they are pretty unanimous!

My husband has a small percentage of the company, something like 2%. It's really hard to get out of him what the probability is of us having to pay back these monthly payments he's getting in future. I find it a very weird situation. For example we give monthly to charity - but should we be doing that if it's not 'our' money and we have to pay it back? But then if we stop that will affect the things we support, and there's a chance it might all be fine in the end.
If things did work out and he was retrospectively taxed in one year for the few years of loans, that would be a big tax payment that would more than off set the tax credit surely. And then I could give it to charity if it wasn't needed.

I was surprised on the amount of entitlement, so maybe pp's are right and it over-estimated. But the principle of the question is the same whether it's £100 or £1000 per month.

But I asked what others would do, and it seems no one else would claim it so I have my answer.

I would also be embarrassed for anyone to know which is quite telling.

OP posts:
Sparklesocks · 28/06/2018 19:16

But you don’t need it, do you?

SoddingUnicorns · 28/06/2018 19:16

I posted a link to the .gov website about directors loans OP.
Everything you describe is no reason whatsoever to claim tax credits in any way.

I’d go as far as to say it would be morally reprehensible.

Original poster
dingledangledongle · 28/06/2018 19:17

Yes it was the childcare element that took it up to £1000 ish. And I already get the £243 salary sacrifice childcare voucher so perhaps that wouldn't apply. Without the childcare element it said £683.96 every 4 weeks.

OP posts:
Stickerrocks · 28/06/2018 19:21

I get it. He isn't being paid a salary of £4,800 per month (which he would have to pay PAYE and NIC on) through the payroll. Instead he is a director and shareholder in the company and intends to take dividends (which attract a lower rate of tax and no NIC) as soon as the company becomes profitable. However, because it is illegal for a company to pay dividends if it doesn't have any distributable reserves, he is still taking money from the company to maintain his lifestyle in the firm of an overdrawn director's loan account. The government doesn't like people avoiding tax in this way, especially higher rate tax payers like your husband, so they impose the special corporation tax charge, which the directors will probably also try to find a way of avoiding to pay.

To summarise, your husband is avoiding tax (obviously not evading it, because that is illegal) but you would like to take even more advantage of those of us who do pay tax to fund your lifestyle, as you didn't want to see a drop in your standard of living. Nice.

NameChange30 · 28/06/2018 19:21

Honestly OP I do benefits checks for a living and if you came to see me I’d have a hard time not laughing at you.

You filled the calculator in wrong. There’s no box for piss-taker with £4800/month in directors loans.

Original poster
dingledangledongle · 28/06/2018 19:22

I won't keep posting, because it's clearly aggravating people and that really wasn't the intention.

But just to answer a query that comes up - I think his payments and that of the other people in the group (some employed, some other partners) come from investors who are 'bank rolling' it in the hope it is profitable in future.

And another query - yes "we" are bad at managing money and I wish it wasn't so. We don't have joint accounts, I am very careful with my money and my earnings and it doesn't cover what I need to pay for, he is not so much. We have issues there definitely.

OP posts:
BristolThenSome · 28/06/2018 19:22

🙈 i was going tp say claim what you're entitled to.. but reading the replies I'm a lone voice

NameChange30 · 28/06/2018 19:23

@Stickerrocks
I think you’ve pretty much nailed it.
Tax avoidance is fine as long as you give to charity, right?!

Original poster
dingledangledongle · 28/06/2018 19:24

@stickkerocks thank you that is helpful, you can probably tell I don't have a total grasp of what his arrangements are. And he is not good at explaining it.

OP posts:
Glumglowworm · 28/06/2018 19:24

YABU

Your DH’s way of getting paid sounds dodgy as fuck

But nobody with that kind of income should even think about claiming tax credits regardless of some dodgy loophole

SoddingUnicorns · 28/06/2018 19:24

So he’s taking money from investors paid to make the business work? OP I reckon tax credits are the least of your worries when the tax man comes calling!

Those loans need to be repaid, or he needs to pay tax on them.

NameChange30 · 28/06/2018 19:25

“ I am very careful with my money and my earnings and it doesn't cover what I need to pay for, he is not so much.”

Oh dear Sad

Armchairanarchist · 28/06/2018 19:25

Are you taking the piss?

MyDcAreMarvel · 28/06/2018 19:25

You wouldn't. Never heard of 12 grand a year in TCs unless you're the Radfords. Even with a disabled child it's an extra grand or so per year, not per month.

My best friend gets just under £38k a year so that’s not true. Six dc , three disabled plus childcare. £20k salary.