advice on underpayment of tax credits

Icequeen99

joandkaz1 wrote: »

how could he make a drawing for personal use if he was maing a loss though?? where was the money coming from? any money you have taken they will need to be delared I should imagine. If hes writing drawings as his wage then that needs to be declared.

This is incorrect. Drawings/wages are not a deductible expense when you are self-employed.

As the OP has noted in one of her posts his profit is determined by:

Income - allowable expenses = profit/loss

It is this figure that is declared for tax credits.

You can have a loss on paper sometimes even if you have some cash that you take as drawings. For example, you can apportion some of your gas/elect if you work at home, mileage is 45p per mile and more than you may physically put in the car etc..generous capital allowances for equipment.

IQ

Assun23

Icequeen99 wrote: »

This is incorrect. Drawings/wages are not a deductible expense when you are self-employed.

As the OP has noted in one of her posts his profit is determined by:

Income - allowable expenses = profit/loss

It is this figure that is declared for tax credits.

You can have a loss on paper sometimes even if you have some cash that you take as drawings. For example, you can apportion some of your gas/elect if you work at home, mileage is 45p per mile and more than you may physically put in the car etc..generous capital allowances for equipment.

IQ

Thank you so much for that, I was beginning to worry I'd got it wrong! Can anyone help with my original question?

Assun23

joandkaz1 wrote: »

well then sureley that is a wage tax credits take into consideration. im sure those companies you owe money to have homes and chilren too!!!

A bit harsh I think. There is no intention to deceive anyone here and I am just trying to get by like everyone else.

Icequeen99

You probably won't be able to declare your 11/12 income until you get your renewal pack. Then you will get your underpayment.

You should be able to call an estimate your 12/13 income, which depending on what it is might see an increase in your payments. But be careful not to underestimate your income otherwise you may have an overpayment.

There is a new rule for 12/13 that means the first 2,500 of any falls in income from the previous year are now disregarded.

IQ

NoBS_2

Bear in mind if you are due an underpayment which is considered a large sum (anything over 1k) You won't get it until the payments department have confirmed via all other departments that you are genuinely entitled to it. All the potential payments will be checked rigorously this year.

The first £2500 will not be counted but anything after that will.

Assun23

I didn't think the £2500 thing would apply for a Year 11/12 underpayment? Just from April 2012 on?

NoBS wrote: »

Bear in mind if you are due an underpayment which is considered a large sum (anything over 1k) You won't get it until the payments department have confirmed via all other departments that you are genuinely entitled to it. All the potential payments will be checked rigorously this year.

The first £2500 will not be counted but anything after that will.

Icequeen99

Assun23 wrote: »

I didn't think the £2500 thing would apply for a Year 11/12 underpayment? Just from April 2012 on?

That is correct. Your 11/12 award will be finalised by comparing 11/12 to 10/11 income (no 2500 disregard)

The 2500 disregard only applies to the calculation of 12/13 claims.

IQ

Sixer

Icequeen99 wrote: »

This is incorrect. Drawings/wages are not a deductible expense when you are self-employed.

As the OP has noted in one of her posts his profit is determined by:

Income - allowable expenses = profit/loss

It is this figure that is declared for tax credits.

You can have a loss on paper sometimes even if you have some cash that you take as drawings. For example, you can apportion some of your gas/elect if you work at home, mileage is 45p per mile and more than you may physically put in the car etc..generous capital allowances for equipment.

IQ

Helpful post! Just to clarify it further: as Icequeen notes, drawings for personal expenses are not counted as business expenses in the self assessment and are irrelevant to the profit or loss made. It's entirely possible to take drawings and make a profit or to take drawings and make a loss.

OP says that the business had bad debts by customers and still owes supplier invoices. This will be where the loss has come from. For example:

Work done: £10k but only £8k actually got paid. That £2k could be the entire gross profit margin (ie after BUSINESS expenses) or even more, and without it the business breaks even or even makes a loss.

Whether or not the OP took drawings to pay personal expenses such as rent and food or NICs has nothing to do with it. They aren't factored into the business accounting at all.