Tax Credits Self-employed Profit Or Income?

ALIBOBSY

paula7924 wrote: »

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.

So you are saying the company had turnover of £26k, drew a wage of £26k and spent all his wage on expenses for the business? So what did you live off for the last year? Unless this is his first year in which case upto £50k setup expenses can be written off against the profit (make sure you keep all the receipts/proofs for write offs).

System

Flashfrost said that her husband was a sole trader not a Limited company so he has to declare his profits as his income not the £26000 he pays himself. So if his profits were, for example, £100,000 then that's what he would have to declare as his income and at that level of income they would have no entitlement to tax credits.

As for Limited companies - I'm not qualified to comment on these and hopefully someone like Jimmo can shed some light on that.

ALIBOBSY

Just Know a friend whose hubby is going from PAYE to setting up a ltd company and ahe always asks me how to do benefit forms as I used to work for the DWP lol.
Just wondering how it would work as he would draw a directors salary then dividends (if they make a profit of course!). Not sure at what point it becomes his income, is it when it is paid to the company and into the business account or when it is drawn down to the personnal account. I suspect income would be paye wage plus pre tax profit, just not sure.

ali x

Conor_3

It becomes his income when the Ltd company pays him the salary and the divvies on paper.