WIBU to claim tax credits in this situation?

[dingledangledongle]

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?

Six dc , three disabled plus childcare

But she’s entitled. Unlike OP playing the silly wife who doesn’t understand money and her dodgy husband.

You still have to declare a directors loan as unearned income, so you wouldn't be able to claim anyway.
That's what we were told.
If you are entitled to it, then you should claim.
Call them and see what they say.

The arrangement you are describing is tax avoidance. If the business never goes into profit there's probably some loophole that allows it to write off these 'loans'. Meanwhile your husband isn't paying the tax and ni others are on his income, yet you want to claim money from the taxpayer?

If your DH only has 2% shareholding in the company & is taking £4,800 per month, the company will need to make profits after tax of at least £2.88m per annum for him to be able to take that level 9f dividend. You do realise that he will need to set aside personal tax of 7.5% and 32.5% to pay through self assessment when the dividends are declared? The link from sodding refers to the notional corporation tax charge which the company needs to pay, which makes it even less profitable. The investors are going to want a return on their investment soon.

Oh dear OP, reality bites eh?

Oh I agree unicorns, the op should not be claiming.

Regarding pp’s comments about the directors loan, this is a perfectly standard thing to do as the director of a company. Doesn’t even have to be a set amount, directors can borrow as and when they feel like it. Nothing dodgy about it at all.

Actually withdrawing money from a company which hadn’t made a profit is taxable to s344 corporation tax at 32.5%. Plus an interest free loan over £10,000 is a taxable benefit too.

Yes this is morally wrong. Your income hasn’t physically gone down if your husband is still bringing home the same as he used to. And eventually he will has to declare this income one way or another.

OP is a taxpayer too! assuming her 20k is paye. she's contributing to the pot.

I know I sounded spiteful but I’m sick as fuck of benefit claimants being labelled and slated and attacked for having to claim benefits, so actual immoral benefit claims piss me right off because not only are they a pisstake, they contribute towards the bullying and nastiness aimed at benefit claimants who actually need the money instead of just scrounging like you.

Grow up, learn about money and what comes in and out of your house because burying your head in the sand won’t help anyone.

He will also need to make payments on account, so in the first year that he is due to pay tax, he will actually need to pay the full amount due along with half of the same amount again every 6 months. If I was you, I would start saving sooner rather than later. Nobody can expect to set up a business, maintain their previous lifestyle and pay no tax.

"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"

@SoddingUnicorns
Well yes - that's my point, that's my concern. I worry that if we are in that situation I would regret not claiming anything that we were legally entitled to.

@Stickkerocks
I think his company are keeping something back for that. So he is getting the same in a monthly loan as he used to get after tax.

What would you two do if your husband had this arrangement?

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

This.

OP you seem naive about your husband's financial affairs and he appears to be keeping you in the dark about the true extent of them. If you are struggling on almost 5K a month and depending on a director's loan to live I would be very concerned.

You know what OP, do as you please. Personally I hope HMRC unravels all this morally bankrupt money moving and nails the lot of you to the wall.

Claim, don’t claim. But don’t ever kid yourself on that you’re a decent human being abusing a system designed to help people in need, not tax dodgers with a spending problem who think they’re owed money.

Absolutely fucking morally bankrupt.

What would you two do if your husband had this arrangement?

NOT CLAIM TAX CREDITS.

What would you two do if your husband had this arrangement?

I'm not one of those you asked, but in your position I'd be looking at the going rates for 5* hotels in St Lucia. I've always wanted to go on a cruise there but have never been able to afford it. You could even post a pic to this thread once you've arrived so we can all bask in the glory of our assistance.

well yes, I gathered that part about the tax credits.

I think you need a bit of perspective. The average household around here brings home less than your part time wage. These people rely on things like tax credit to survive. The more people like you take from it the less they will have to live on.

NEVER EVER claim benefits unless you really have no other choice. You just set yourself up for a shitstorm. They can claim back any overpayments at any time, there's no statute on that, and it's the HMRC so you will have to pay them back, even in bankruptcy.

You can't do salary sacrifice and claim childcare. It's either/or. I was better off with salary sacrifice when I claimed. However after years of help via the system I am happy to be earning over the threshold and so should you.

OP would I be right in thinking that the bigger question, the question you really want to ask, is this:
“How can I save my family from financial ruin when our outgoings exceed our income, my husband now has a complex business arrangements which means that we may or may not end up with a very large tax bill and no means to pay it, and I am careful with money but he isn’t careful with his?”

well yes, I gathered that part about the tax credits

Aye alright smart arse, you’re the one who doesn’t understand finances, can’t manage on £70k + a year coming into your house and despite tax dodging want the taxpayers to fund you?? And you’ve got the cheek to get nippy?

Fuck it, I’m calling bridge dweller. Nobody, nobody is this wilfully dense.

OP is a taxpayer too! assuming her 20k is paye. she's contributing to the pot.

So is everyone! Doesn't entitle people to take the piss. It's not a fucking bank account, 'Oh, I paid in so I'm entitled . . . ' is the reason things are so fucked up here.

But he’s not a taxpayer is he? So there is no “too”

Your dh might be classed as not earning anything but that doesn't make him immune from having to declare non earned income.
How on earth have you got to the stage where you can't live on your huge income. I would be worried about being with somebody so clearly bad at managing money, especially if I was no better myself.
I'd also be worried about my families needs being met with no definite income.
You may find yourselves unable to claim benefits in the future as UC is totally different to tc.
Gosh OP you need some understanding of the tax system if you are going to do things like this, do you have a good accountant?

I definitely wouldn't advise you to claim tax credits. The thing is though, his company isn't really keeping anything back, because he is borrowing from the company. That means he has a liability and owes the company the money that he has taken. If he does end up with a tax bill, he will need to borrow even more from the company to pay the tax due. HMRC rub their hands in delight at arrangements like this, because it is so easy to slap a tax charge on the company and/or on your husband.

You are potentially in a precarious position. If you husband had taken salary or dividends, they are income and do not have to be repaid to the company except in exceptional circumstances. If the company does face financial difficulties, liquidators would not hesitate to call in the loan made to your husband, regardless of whether or not he has spent it on living expenses. The small print of his director's loan agreement(If there isbone) almost certainly states that the director's loan is repayable on demand.