Tax credits- (very) low income director

[DogsTail]

I have recently come back to work from my maternity leave and my earnings are negligible. I have a small limited company, wehre i am th eonly employee and director. I have been claiming tax credits as of last 4 months. What is the situation with directors, as employees of the company, and working tax credits? I have read something online that it might mean I'm not eligible for the WTC as since I'm an employee than I should earn a minimum national wage and if I don't I am not deemed as employed by the TC office. I'm worried now, I registered the business as limited company and should've just done it as self-employed.

So could that be true that I might not be eligible for the WTC?
Hope that's clear(ish).

(..) where I am the only...

I have been claiming tax credits for the last 4 months. Argh, mistakes!

It's not simple...

All of the following assumes you have no other income.

In order to qualify for WTC you have to be working for at least 16 hours a week.

If you are self employed you simply have to be able to demonstrate that you work for at least 16 hours. But if you are an employee, you must have an employment contract in place and work for at least 16 hours a week under that contract.

As a director of a company you are an office holder. NMW does not apply to office holders, so directors who do not have contracts of employment don't have to be paid NMW.

But you have to have a CoE for WTC, so you have to be paid NMW.

Now the good news...

There is nothing to stop you lending money to the company which it can then pay you as salary.

16 hours at £6.08 a week is £97.28 a week.

In nearly all cases your company should be paying you at least £102 a week (£107 from April 2013) in order to preserve your basic pension and qualify for certain benefits.

No NI or tax is due on earnings below £136 a week. If your company's profit before paying you is more than the personal allowance (currently £7,475) you should pay yourself the personal allowance, otherwise anything between £102 and £136.

So even if your company is earning nothing (many companies operate at a loss for the first few years and still pay people), you should pay yourself say £5,760 a year for a 16 hour week.

You will need to register for PAYE.

Pay £500 a month into the company bank account as a loan, and pay yourself £480 a month from the company bank account on the last day of the month.

Note that I am not suggesting that this method can be exploited to claim WTC which you would not be entitled to, I am explaining the additional hoops someone who works 16 hours a week for a company they own needs to jump through to be in the same position for WTC as someone doing the same work in a self employed capacity.

Usual disclaimer applies. HMRC now make it very difficult to comply with the requirements for a limited company (that is not dormant or exempt from corporation tax) without using an accountant.

Thank you MrAnchovy. Hmm, if I only knew that 6 months ago when I started applying...

Soooo, it does seem I might be in a bit of a pickle then. I just got a letter from TC office asking me to confirm my employment. I saw that in the reference box/ grid it said 'ceased employment'. I called to ask what the letter meant and they the woman said not to worry, it's a routine check. Okaaay... So I called again as the first time round I didn't have the employer's PAYE reference they needed. Again, the guy said: "I will make a note that you still work there' and it seemed as if it were nothing. I wasn't entirely convinced, so did some search online, hence my OP.

So now what can happen? I suspect someone in the head office clocked I am not paid NMW, but then again someone did award me the WTC (and CTC) to start with so can they make me repay the previous payments if it was their mistake (assuming it was a mistake).

Also I originally put I that I work 30 hours, because well, as you can imagine I work all the time so when they ask do I work 30 hours per week, I said yes. So should I change it now to 16? Sorry, if it's all a bit winded, I'm trying to make some sense out of it.