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Where Taxpayers and Advisers Meet

Advice for tax credits while self employed

salmabismal11
Posts: 1
Joined: Tue Feb 19, 2019 5:00 pm

Advice for tax credits while self employed

Postby salmabismal11 » Tue Feb 19, 2019 5:03 pm

Good Afternoon

My name is Sam

I am looking some information with regards to tax credits and being self employed.

I am currently employed and earning £17,500 per year.
I am a single mother of 2 (3 years and 7 years old).
I have a disability which I get PIP for and also receive Child Benefit. Currently I am getting working tax credit and child tax credit and receive a total of £746.98 per month

My questions are: I have decided to start a new business with a friend. It will be a 50/50 limited company my friend and I will be directors. I will receive my salary of £27000 per year from the company.

I want to know how this whole change will affect my tax credits? How much would I receive in working and child tax credits? And also how will I be taxed? as I will be receiving a salary and also be trading through my own limited company.

Say for instance I make a profit of £60000 per year through my company and I take salary of £27000. The remaining money will be split with my partner after expenses. How will this all affect my Tax credits? And what tax will I pay? How would this all work out if I was taking my salary monthly.


Any help would be appreciated.

Thanks Sam

D&C
Posts: 61
Joined: Thu Dec 22, 2016 10:04 pm

Re: Advice for tax credits while self employed

Postby D&C » Tue Feb 19, 2019 8:54 pm

I am looking some information with regards to tax credits and being self employed.
My questions are: I have decided to start a new business with a friend. It will be a 50/50 limited company my friend and I will be directors. I will receive my salary of £27000 per year from the company.
as I will be receiving a salary and also be trading through my own limited company.
It sounds as though you aren't actually going to be "self employed".

Given your confusion over this fundamental issue then I would suggest you seriously consider using the services of an accountant before you go any further. You are likely to find it is money well spent. You can ask friends or relatives to recommend a couple of accountants local to you who you can have a (often free) initial chat with.

robbob
Posts: 2818
Joined: Wed Aug 06, 2008 4:01 pm

Re: Advice for tax credits while self employed

Postby robbob » Wed Feb 20, 2019 9:05 am

For a limited company it works like this

The companies earnings are that of "the company only" and not relevant when calculating your income for "tax credits purposes"
So in theory company makes 50k profit you have salary of 27k and no other income from the company (eg dividends or benefits) then its only your 27k taxable income that counts.

Note there are specific tax credit rules if one "deprives oneself of income" to get tax credits so you could run into issues in theory if there was a deliberate strategy to leaving earnings within the company to gain the tax credit system - not likely to be an issue generally speaking but you need to be aware of the issue and if you stashed away money over along period of time to aid a tax credit claim thats probably the wrong side of the line IMHO. This is a real issue as practicably speaking you can often take income exactly when you want and to the level you want.

Main thing is whoever does the business finances for the company needs to be on the ball so you are aware exactly what you taxable income from that company is and when that is dated - be it salary / p11d benefits or / dividends - its normally to take big wad of withdrawals in dividends rather than salary and the tax point of the voting of these dividends will be important for you. Practicably speaking never presume others will cover your back in this regard ! Dividend voting can be harder than making up a number as the business must have enough retained reserves to vote that dividend.

Note there is another potential issue with benefits in that owning a company is an asset that has value - so you may need to declare value of shares in the company when claiming some benefits perhaps?

As D&C rightly points out - you can end up in a world of confusion if you are not 100% transparent that your are a company director who received paye income and possibly dividends etc to all parties involved - this should never be confused with being a "sole trader" or having "partnership income" (partnership income is effectively same as sole trader in mot respects - the sole trader route is often the default "self employed" situation highlighted on forms. For forms you will indicate that you are company director/shareholder and likely declare salary as employment income and dividend income as other income. Having proactive advisor on board should keep you right.


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