Question about tax credit and WFTC

lucky_in_love

My husband started his business in September 2009 and so far he's made very little money mainly due to buying stock and a vehicle to run his business with. We had a small amount in savings so we've been living off that money for the last year really. He earned so little that we were entitled to tax credits and WFTC.

In the last few weeks his business is doing much better so I've been helping out with paperwork and going out on the road with him to help when he's really busy.

I'm registered as unemployed with HMRC so I need to let them know that I've been working with my husband. I don't get paid for the work I do which is fine by me, I'm doing it to help my husband get his business up and running. What is likely to be the response from HMRC if I tell them that I'm working for nothing? And could it affect our payments?
Could they report my hubby for not paying me minimum wage for instance?
I guess on average I'm working about 14 hours a week.

CIS

Working unpaid may not be accepted by HMRC for tax credits and tax purposes. There are regulations in force regarding deprivation of income/receipt of income in kind to the point where the income can be deemed to have earned in some situations. You may be best discussing the issue with an accountant.

zagfles

You'll probably be better off if he does pay you as you'll then be able to use your tax allowance - and so pay less tax. It shouldn't make any difference to tax credits - as they're assessed on your joint income so if pays you your income would go up and his would go down by the same amount so no difference in the total!

CIS

as they're assessed on your joint income so if pays you your income would go up and his would go down by the same amount so no difference in the total!

The problem comes if the Tac Credits Office deems it as income - it would then seperately have to be sorted out for the business expenses but it couldn't then be claimed as an expense as its not actually being paid. The next result would be that it would be counted as income for tax credits but not deductable as a business expense which would alter the overall income.

zagfles

CIS wrote: »

The problem comes if the Tac Credits Office deems it as income - it would then seperately have to be sorted out for the business expenses but it couldn't then be claimed as an expense as its not actually being paid. The next result would be that it would be counted as income for tax credits but not deductable as a business expense which would alter the overall income.

Yes they could do that - see TCTM04805 on the HMRC site (sorry this forum won't let me post links but you can search for TCTM04805 on the hmrc site). It would be completely unfair as it'd be counting the same income twice, but then when has fairness ever come into tax (or tax credits)!

So from both a tax and tax credits POV it'd probably be best if the OP did actually get paid by her husband, then he could claim her pay as a business expense and she'd use her tax allowance against that income.

There's lots of stuff on the hmrc site about registering as an employer etc.