Tax Credits Self-employed Profit Or Income?

FLASHFROST

No-one at the Tax Credits helpline seems to be able to clarify this, they all say different things! I am employed so it's easy to fill in the details from my P60. My husband is self-employed but what figure do we put in the income box? The amount he has brought home each week by paying himself a regular wage or the amount on the tax return which is the end of year profit/loss. There's a huge difference as he could pay himself a £1000/week yet have zero profit - ????? Any help gratefully received as I am going round in circles trying to sort it out! Aghhhh! Thanks in advance!

[Deleted User]

If he is paying himself a wage he needs to declare the gross wage. If he also has a profit at the end of the year he needs to declare the net profit too.

You may be confusing the tax credits adviser as most people will be employed by a company and get a wage - shown at the end of the year on a P60 OR they are just self employed and declare the net profit at the end of the year.

Conor_3

FLASHFROST wrote: »

No-one at the Tax Credits helpline seems to be able to clarify this, they all say different things! I am employed so it's easy to fill in the details from my P60. My husband is self-employed but what figure do we put in the income box? The amount he has brought home each week by paying himself a regular wage or the amount on the tax return which is the end of year profit/loss. There's a huge difference as he could pay himself a £1000/week yet have zero profit - ????? Any help gratefully received as I am going round in circles trying to sort it out! Aghhhh! Thanks in advance!

I take it he's not a Ltd Company? In that case, you put the same figure on it as you come out with in the end of year profit/loss. So at the end of the year, if his takings are £20,000 and the taxable expenses are £10,000, his income for Tax Credits purposes is £10,000 regardless of what he decides to pay himself weekly.

If he has done it as a Ltd company then his income would be the wage the Ltd company pays him or any dividends paid to him by the Ltd company.

FLASHFROST

Hmmm, still confused I'm afraid!
It's not a limited company, by the way - just sole trader.
The profit figure is zero as it was a loss, but he paid himself £500 each week of the year. So do I put down £0.00 or £26,000 in the Income box??
Thanks for any more help?!

chrisbur

FLASHFROST wrote: »

Hmmm, still confused I'm afraid!
It's not a limited company, by the way - just sole trader.
The profit figure is zero as it was a loss, but he paid himself £500 each week of the year. So do I put down £0.00 or £26,000 in the Income box??
Thanks for any more help?!

If he made a loss where did the £500 a week come from that he paid himself?

System

What he declares has to tally with the figures he declares on his tax return. So what did he declare on it?

Read the paragraph on Allowable business expenses here - http://www.hmrc.gov.uk/helpsheets/hs222.pdf -particularly the bit about personal drawings. I don't think he can take his "salary" from his business as a business expense to put his business at a loss.

Conor_3

FLASHFROST wrote: »

Hmmm, still confused I'm afraid!
It's not a limited company, by the way - just sole trader.
The profit figure is zero as it was a loss, but he paid himself £500 each week of the year. So do I put down £0.00 or £26,000 in the Income box??
Thanks for any more help?!

You put zero. He made a loss.

Just to add that if his business has a positive bank balance, it's treated as if he has a bank balance of that amount when you're a sole trader so if its more than the level you're allowed for the means tested benefit you apply for that would need to be declared when asked if you had any assets for any benefit you apply for..

paula7924

FLASHFROST wrote: »

The profit figure is zero as it was a loss, but he paid himself £500 each week of the year. So do I put down £0.00 or £26,000 in the Income box??

I'm sure that Pam17 is right - you have been treating his £500 per week drawings (as they are called) as an expense to his business (assuming that there has been enough cash to take out the £500 pw and that the bank account isn't going overdrawn) and deducting it from the business profits which is incorrect - the drawings really ARE the business profits.

If the £500pw was the spare cash available for him then not only is the £26,000 the self employed profit for tax credit purposes, £26,000 should also have gone on to his tax return as the business profits figure (not nil) - a rather large tax bill is probably outstanding I'm afraid.

raq

this post is very interesting as my hubby is self employed.

System

TCO automatically compare what is declared on the annual declaration with the information supplied by employers and tax returns submitted by the self-employed. The self-employed are allowed to declare estimated earnings on the annual declaration whilst they wait for their books to be done but have to supply actual figures when they submit their tax return.

If the figures do not tally then the claim is flagged as a potential fraud risk.

From the information the OP provided I would say that her husbands business profit was £X out of which he happened to draw £26000 for personal use. £X should be declared as his profit on his tax return and as his income on their tax credit claim.

ALIBOBSY

So are you saying if you ran as a limited company you could pay yourself a wage (which you would obviously declare as income), but you only declare any dividends paid to you from the company on top i.e if your business account had £30000 in and you draw £10000 divi you would only declare £10k? Doesn't this mean that you could be earning and leaving it to stack up for the future but still qualify for CTC/WTC when you are way above the limits? Or is the dividends all that is in your business account at the end of the year i.e wht you pay CTax on?

ali x