Tax Credit overpayment

kstone

Just been told I have been overpaid £16,437 in Tax credits..

I have a Ltd Company and essentially take out around 17k wage.
Everything stays in the company.

My kind accountant advised to take full dividend allowance so that I can take it out at a later date... Even though it all stays in the company. I guess it is my fault at the end of the day, but a warning to others.

:j

Not sure if I should laugh, cry or give up.

All for option 'c' at the moment, anyone had success in long term paybacks? or do you do the loose your house thing?

Icequeen99

So your accountant advised you to take dividends and didn't mention or advise on the tax credits interactions?

If you have an ongoing award, they will reduce payments going forward. If not, then you will be able to arrange a repayment plan, they are normally fairly generous if you offer something realistic.

I don't quite get what you are saying about dividends being left in the company - dividends are payments that a company makes to its shareholders. The company doesn't have to pay out dividends, the money can be left in the company. But you seem to be saying you have taken the dividends but then paid the money back to the company?

IQ

kstone

Dividends were left in the company.
It was a paper exercise, they essentially get paid to me but end up as a directors loan because although the profit is there it is not really sensible to pull out all profit at the cost of choking cashflow.

In honesty, I was naive and cocked up.. I didn't really focus on the way Tax credits worked. I'm sure if sensible the accounts could have been handled differently.

I will not be looking to dodge paying, But nearly 17k is quite a lump to give back, hopefully A 10 YEAR plan is possible.

bloolagoon

How did you get £17,000 benefits in 1 year?

zagfles

kstone wrote: »

Dividends were left in the company.

This is nonsensical. A "dividend" is a payment made by a company to its shareholders, so dividends can't remain in the company by definition. You probably mean profits not dividends.

It was a paper exercise, they essentially get paid to me but end up as a directors loan because although the profit is there it is not really sensible to pull out all profit at the cost of choking cashflow.

How does pulling it out as a loan make any difference to cashflow compared to pulling it out as dividends? Or do you have it available to immediately put back if required (doesn't seem so from what you write below!)

HMRC as well used to dealing with schemes where income is disguised as loans. This is even easier for them to deal with in tax credits (compared to income tax) as there are notional income rules which cover this sort of thing.

In honesty, I was naive and cocked up.. I didn't really focus on the way Tax credits worked. I'm sure if sensible the accounts could have been handled differently.

I will not be looking to dodge paying, But nearly 17k is quite a lump to give back, hopefully A 10 YEAR plan is possible.

Icequeen99

zagfles wrote: »

This is nonsensical. A "dividend" is a payment made by a company to its shareholders, so dividends can't remain in the company by definition. You probably mean profits not dividends.
How does pulling it out as a loan make any difference to cashflow compared to pulling it out as dividends? Or do you have it available to immediately put back if required (doesn't seem so from what you write below!)

HMRC as well used to dealing with schemes where income is disguised as loans. This is even easier for them to deal with in tax credits (compared to income tax) as there are notional income rules which cover this sort of thing.

That's what I was saying above - the very nature of a dividend is that it is money paid out.

Surely though the OP has an amount equal to the dividends - because he has given it back to the company as a loan.

You might be hard pressed to get TCO to give you a 10 year payment plan if you have the money.

Also, presumably next year your income will be lower (because you won't have the tax credits) therefore you will need to actually take the money.

IQ

antrobus

zagfles wrote: »

This is nonsensical......

No it isn't. It's quite common for small companies to carry out this sort of "paper exercise" where a dividend is declared but credited to a director's loan account.

kstone

I'm still trying to figure it out myself..
Including Childcare payments etc it adds up. I don't know how the magic formulas work (which is blatantly obvious to be now).

Upto 2012 £569.55
2012-2013 £8829
2013-2014 £7108

Dividends are 'paid to me', it is then allocated as a 'directors loan' - Essentially I 'loan' the company the money that it owes me. In order for the company to grow. I'll see it one day if/when the company is mature enough for it to be taken out.

I guess it is a discussion for the Tax credit team to see if they can allow me a reasonable timeframe.

zagfles

antrobus wrote: »

No it isn't. It's quite common for small companies to carry out this sort of "paper exercise" where a dividend is declared but credited to a director's loan account.

So what actually happens to the money? If the director spends it, then clearly it hasn't stayed in the company. If it stays in the company, then what's the point of declaring a dividend, why not just pay no dividend and leave the profits in the company?

zagfles

kstone wrote: »

I'm still trying to figure it out myself..
Including Childcare payments etc it adds up. I don't know how the magic formulas work (which is blatantly obvious to be now).

Upto 2012 £569.55
2012-2013 £8829
2013-2014 £7108

Dividends are 'paid to me', it is then allocated as a 'directors loan' - Essentially I 'loan' the company the money that it owes me. In order for the company to grow. I'll see it one day if/when the company is mature enough for it to be taken out.

I guess it is a discussion for the Tax credit team to see if they can allow me a reasonable timeframe.

So you aren't actually taking the money out, but a dividend is being declared? So you are taking the dividends but then loaning it back to the company?

Does the dividend which is not being paid count as taxable income? Did your accountant understand and explain the tax credits implications of what you're doing? Was he aware you were claiming tax credits, did he even ask?

It sounds like you might have been screwed by some silly scheme which was meant to save you tax or perhaps prevent creditors getting their hands on the company's money if it goes bust, but has ended up costing you a fortune in lost tax credits.

WelshPaul

I had my credit card statement this morning, nearly cried when I read that I owe them the best part of four grand. I feel better now reading this thread!