self employment and tax credits

shell1012

Hi there, New here just wondering if anyone can advise. My husband is a partner in his business, he and his partner both take a "wage" every week and I have declared this to tax credits as his yearly profit. I have recently been told that this is wrong. The accountant says he made no profit this year, he broke even just about. I phoned tax credits to ask advice, they said if he declares it on his self assessment as a wage, then I simply tell tax credits zero profit and they owe me for the last year. If he puts it on the business assessment for tax then I keep it as declared profit. I am so confused as it's a lot of money we are taking about possible being owed by tax credits and I don't want to run the risk of being wrong and paying it back yet it would be incredibly handy to Have the extra money.

TIA xxx

shell1012

Self employed in a partnership

shell1012

Thanks, I have read that a wage cannot be put down as an allowable expense unless it's an employee wage and seeing as he is a partner he isn't an employee is he? For example, the business has made zero profit but he and his partner have both taken £9000 over the year each as a weekly wage, would I declare zero to tax credits or £9000? Sorry if am being a bit thick but it's all so confusing.

shell1012

Yeah that seems right but the accountant put it to them as no profit. I think the accountant has done their personal self assessments too based on that, from what the man at the tax office said, if they had done it this way then to declare a zero profit. This doesn't seem right to me however a friend who's husband is in a similar position takes a similar wage and declares no profit and they have had no problems. Thank you for trying to help me, I know it's confusing and we are questioning the accountant too but he takes a long time to get back to us.

shell1012

Thanks again, he is going to go and see the accountant tomorrow, to get some definate answers straight away.

densol_2

Do u work ? As if it is a true loss it can serve to reduce a partners income down for TC purposes

shell1012

Yes I do work part time. So in theory , from what I have read, he could make a loss and balance to a break even using the drawings he and his partner have taken? Leaving a zero net profit? Am I right or should I give up now?!?!

Icequeen99

shell1012 wrote: »

Yes I do work part time. So in theory , from what I have read, he could make a loss and balance to a break even using the drawings he and his partner have taken? Leaving a zero net profit? Am I right or should I give up now?!?!

I think you are tying yourself in knots over the drawings/his wages, for tax and tax credits you need to forget what he takes out of the business.

The profit of their business is, as said above, their income minus ALLOWABLE expenses and capital allowances. Essentially whatever is left is their taxable profit and will be split between them on their personal tax returns (either 50/50 or whatever percentage). How much he has taken out as a wage is not relevant at all as it is not an allowable expense.

If they make a loss, then for tax credits you declare his income as NIL. And you can set the loss against your income from work.

IQ

shell1012

Thank you, your right really I just need to be patient and wait for the accountant to give us the final figure for the year, I just like to understand these things! Bit of a control freak I think!! Thanks again.

densol_2

The "drawings" do give the impression that it's not a true loss .... BUT they may have business expenses, capital allowances and annual investment allowances that reduce the turnover into a loss. It may be the partners have " invested" in the business by buying assets but on loan. Only the accountant can and SHOULD say what the exact position is - it's really rather straightforward if you know what you are doing - So for example

Turnover 20,000
Business expenses 5,000
Capital allowances 1,000
Annual investment allowance ( ie bought a van or business plant ) 100% - 16,000 ( could be by finance but full cost comes off - so not actually spent with cash - hence they could still find money to draw a wage but on the books it's covered by AIA )

Total in 20,000 total out - 22,000 = loss of £2 k so each share a loss of £1k

On CTC - your income £8k but you can deduct the legitimate £1k loss as joint claim - your income is then £7k for CTC purposes .

It's vital you get proper and correct figures off the accountant as this could go horribly wrong.