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Original poster

Crafts people/artists and tax credits

41 replies

AndThisIsTrue · 19/09/2014 12:58

I am currently a SAHM and am looking into selling my art work which is currently a hobby to try and make a bit of extra money. I just wondered how would this work for claiming tax credits? Do I just give an estimate of how many hours I think I will do? What if I don't earn much money will they think it isn't proper work and say we have to pay tax credits back? I am concerned as to how I would prove how many hours I spend painting or whatever, do you keep note of things like this? Thanks.

OP posts:

morethanpotatoprints · 19/09/2014 21:18

Talkin

Sincerest apologies, I read it like you were tarring us all with the same brush.
I think sometimes it is difficult to make that last hurdle which will mean no more tax credits and some businesses never do make it.
My dh has been self employed and then a small business and has built up to as far as he can.
He took my advice on not keeping all his eggs in one basket but although this helped it didn't quite do it.
I had never considered it the way you suggested, apologies again

TalkinPeace · 19/09/2014 21:23

Morethan
its really hard, since Broon's idiotice 0%CT rate aftermath combined with the 13.8% ERS NI rate
the market has been massively skewed in favour of big companies forcing staff to "be self employed" rather than facing crippling employment laws

in the backwash, lots of "hobby businesses" got the rest of us to feather their nests : bad move
which is now being (rightly) unraveled

Original poster

AndThisIsTrue · 19/09/2014 21:50

I didn't expect this many replies to come back to! We already claim tax credits and I'm in Scotland if that makes any difference, I don't think Universal credit is up here yet?
Of course it is a hobby business at first but I would hope it will become an additional income to support our family while our children are young. But as someone else said (sorry I'm rubbish with names) surely you need a chance to set up and work out if it is going to be a viable business? Seems a shame that you can't get any financial support in the start up stage.
I will go ahead anyway, it was more that I didn't want to end up being overpaid tax credits.

OP posts:

morethanpotatoprints · 19/09/2014 22:22

Talkin

I am not familiar with Broon, but love how you know your business.
I sort of understand bits though as have picked up things our accountant has explained.
It always sounds understandable when she explains, but if I tried to explain it later, its gibberish That's why we pay for you to understand.

Dh has had a time when some schools forced the self employment, but that was quite a while ago now.
I know at one time he was paying as employed and self employed and our last accountant (different area) said he would be better off forming a Ltd company, so he/we did. Although I don't do much, but offer advice. Can you be a sleeping company director? I am also secretary but don't do much for this neither

HolidayPackingIsHardWork · 19/09/2014 22:32

I'm only curious...how can "housewives" who are actually being supported by their spouse get tax credits. I assumed it would take household income into account, not just the hobbiest.

Original poster

AndThisIsTrue · 20/09/2014 10:25

It would be a joint claim Holiday and you would only get tax credits based on your joint income I assume. My DH only works part time as he is a student so we have quite a low income which is why we get tax credits atm.

OP posts:

morethanpotatoprints · 20/09/2014 12:57

Holiday

It is working from home.
I think most "housewives" who work out of the home are also supported by their spouse.
For example a pt job or even ft where the spouse earns more than the wohp.
Not all businesses are capable of making a lot of money but are able to employ others.

GimmeMySquash · 20/09/2014 13:07

How does the whole income/dividens/tax credits thing work when you run your own business?

morethanpotatoprints · 20/09/2014 16:43

Gimme

I'll try Talkin will no doubt explain better.

Your income for tax credit purpose is the amount you are paid i.e your wage after allowable expenses but before tax and Ni are taken out.
If you take a dividend out of the business this is counted as income and is taxable. So taxable income in terms of tax credit. You also have to declare all other none earned income, payment in kind. I can't remember the others off hand.
If I'm incorrect Talkin will clarify better, I'm not an accountant so don't really understand too much

HolidayPackingIsHardWork · 20/09/2014 19:54

Sorry, not trying to start a SAHM, wahm, WOHM brew ha ha. Truly.

Was just thinking that tax credits must apply to households, not individuals. And therefore, in the majority of cases, if one partner can afford so little income, then the other partner is probably earning enough to make tax credits no longer available.

TalkinPeace · 21/09/2014 15:19

Gimme
If you are an employee, your annual tax bill is deducted by the employer in the form of PAYE and National insurance. Your employer also pays ERS NI of 13% on top of you wages.

If you are self employed (also known as a sole trader) your tax bill is on your profits after costs. You pay Tax at the same rates as an employee and then NI at 9%

If you run your business as a limited company
you are its employee so it pays your tax and NI
BUT
to reduce tax bills, most small company owners pay themselves a very small salary and then leave the rest of the money in the company to be taxed at the CT rate of 20% and then draw it out as dividends on which the tax has been paid.
If they draw out a LOT they have to pay more tax but still no NI and still less than as a salary.

GimmeMySquash · 21/09/2014 20:03

So when can someone with a limited company take out dividends? Would they not be considered income?

TalkinPeace · 21/09/2014 20:10

yes, they are income but treated as investment rather than earnings

morethanpotatoprints · 21/09/2014 21:10

Holiday

Sometimes I have worked for dh and he has paid me and I have been an employee of the business.
The tax credit was awarded on joint income but of course as an employee myself we were both considered as employed.

There have been other times, such as now where I still do the flippin work but don't get paid as there isn't enough money in the business.
So for e.g if dh paid me/ company paid me, there would not be enough left to run the business. So in lean times I do the work without being paid.

When I am being paid we end up with more tax credits iyswim.

It can get complicated.

HolidayPackingIsHardWork · 21/09/2014 22:08

Yes, I see what you mean morethan. But, if things went really well, presumably you'd be making enough between you not to qualify for tax credits. Or would you take it as dividends and still get tax credits? I wouldn't blame you personally, but I would think HMRC was rather silly.

morethanpotatoprints · 22/09/2014 20:31

Holiday

Do you still get tax credits if you take a dividend? I'm not sure as we haven't taken one yet. If we were still under the threshold and and you were allowed etc, and of course we declared it how we were supposed to I suppose yes, we would still have tax credits.
We just keep money in the business to pay people or goods we need for the business and me/dh take a wage when there is enough for me.
Dh always has a wage though as most of the time I'm a sahp without an income, well from the business anyway

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