Income falling by £70k - how do I claim tax credits?

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meester
meester Posts: 1,879 Forumite
in Benefits & tax credits
My joint income with spouse for 2007/08 tax year is about £80k. Obviously we aren't entitled to any tax credits.

Most of this is made up of dividends from the company that I own. The balance, £11,200 is our salaries.

As of next tax year, I'm not going to pay any dividends.

So our income will fall to £11,200 on which level I believe we are entitled to around £7,800/year in tax credits.

How do we ensure we get the right amount of tax credits because I believe they usually base it on previous year's income.

Also, with our baby, born last August, would we get only four months baby allowance if we start from April? Or would it continue for the full tax year?
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  • meester
    meester Posts: 1,879 Forumite
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    Also, does anyone know about "income deprivation", and how it applies in practice?
  • [Deleted User]
    [Deleted User] Posts: 0 Newbie
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    You claim tax credits initially based on your previous year income. Once your claim is processed (and tells you that you are entitled to £0 due to level of income), you call up the helpline and give them your current year estimated income. If it is lower than the previous year, your claim will be based on the lower current year estimate.
  • Mojisola
    Mojisola Posts: 35,559 Forumite
    Name Dropper First Post First Anniversary
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    meester wrote: »
    Most of this is made up of dividends from the company that I own. The balance, £11,200 is our salaries.

    Won't there be questions asked about how few hours you work to earn only £11,200 between you and still have a company able to pay £70,000 dividends?
  • meester
    meester Posts: 1,879 Forumite
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    Mojisola wrote: »
    Won't there be questions asked about how few hours you work to earn only £11,200 between you and still have a company able to pay £70,000 dividends?

    Directors are exempt from the Minimum Wage. The company's profit is entirely separate from what salary it pays its staff.

    Tesco makes £5 billion (or whatever), and can distribute £5 billion of dividends, doesn't mean their staff are paid that much.
  • dmg24
    dmg24 Posts: 33,925 Forumite
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    So why don't you pay yourself more?
    Gone ... or have I?
  • Torby
    Torby Posts: 1,704 Forumite
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    dmg24 wrote: »
    So why don't you pay yourself more?

    because then you wouldn't be eligible for tax credits?
    I'm now a retired teacher... hooray ...:j

    Those who can do, those who can't, come to me for lessons:cool:
  • Scarlett1
    Scarlett1 Posts: 6,887 Forumite
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    Torby wrote: »
    because then you wouldn't be eligible for tax credits?
    I would have thought tax credits would look at the larger figure rather than what you are paying yourselves in wages, they might take the view that you still have the money whether you pay it to yourselves or not so wont be entitled to tax credits, they could claim it back if they pay you when you aren't entitled.
  • lilac_lady
    lilac_lady Posts: 4,469 Forumite
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    £70000 is a lot of money to have earned. I think you'll need to be prepared to account for a lot of it when you claim anything.
    " The greatest wealth is to live content with little."

         Plato


  • Battle_weary
    Battle_weary Posts: 25 Forumite
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    We had our own business and elected to have dividends rather than salary. Its perfectly legal and tax efficient. However, on the Tax credits form it does have a box for "other income" and you have to declare your dividends on that part of the form. If you ahve such large dividents you may well not be entitled to any Tax credits as the total money coming into the house (whatever it is) will be far in excess of any entitlement you may get.
  • meester
    meester Posts: 1,879 Forumite
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    Battle_weary wrote: »
    We had our own business and elected to have dividends rather than salary. Its perfectly legal and tax efficient. However, on the Tax credits form it does have a box for "other income" and you have to declare your dividends on that part of the form. If you ahve such large dividents you may well not be entitled to any Tax credits as the total money coming into the house (whatever it is) will be far in excess of any entitlement you may get.

    That's true.

    But my point is if I don't pay myself any dividends, there's nothing to declare on that box.
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