Tax credit disaster for self employed

MsFoxtoyou

Hello,

Desperately need some advice about tax credits. It's all a bit complicated!!

Our tax credit claim was based on only my earnings as my partners business wasn't making any money. Then right at the end of the tax year a supplier wrote off a large debt, which meant his accounts suddenly showed a £20,000 profit!

As far as I can tell we have to declare the "profit" from his business as his earnings. Is this correct? Even though it was not actual income for our household?

I've stuck my head in the sand a bit about this as I find the whole thing quite terrifying and depressing. My income is not large (under £20,000) so the thought that we'll have to pay everything back is very worrying.

The supplier did say that he could move the write-off to this tax year instead. My partner made his business limited at the start of the tax year, so we'd then be liable for corporation tax on it instead.

No idea what's best to do. Any help very much appreciated!

Foxy

Icequeen99

Aside from a few exceptions (none of which I can see applying here) you will need to declare whatever the figure is on the tax return as profit. So if that is the £20,000 then that is what you will need to include for tax credits.

IQ

lovinituk

Surely you haven't received £20000 in tax credits for the year? Even if you have to repay £10k back in tax credits, you're still going to be £10k better off. What's wrong with that?

lovinituk

MsFoxtoyou wrote: »

As far as I can tell we have to declare the "profit" from his business as his earnings. Is this correct? Even though it was not actual income for our household?

If he was a sole trader at the time then the profit from his business certainly was part of your household income.

tomtontom

Was your husband making a loss before? If so the written off debt would first cancel out that before becoming profit.

I'm more intrigued as to why the supplier would write off such a large amount, and even give you a choice as to when they do so?

Horseunderwater

Put all WTC that you have received this tax year to one side in an ISA cash type until they write to you to pay it back. That way it will be out of the way.

nannytone_2

Horseunderwater wrote: »

Put all WTC that you have received this tax year to one side in an ISA cash type until they write to you to pay it back. That way it will be out of the way.

how is the OP going to put the tax credit money to one side?
as i read it, this isn't a cash amount they have nbeen given, gut a debt written off.
it isn't cash they have ... just money they no longer owe!

leveller2911

MsFoxtoyou wrote: »

Hello,

Our tax credit claim was based on only my earnings as my partners business wasn't making any money. Then right at the end of the tax year a supplier wrote off a large debt, which meant his accounts suddenly showed a £20,000 profit!

Can you post the name of the supplier, I'm sure there will be lots of people who would like such a large debt written off..;)

As far as I can tell we have to declare the "profit" from his business as his earnings. Is this correct? Even though it was not actual income for our household?

Yes, his profit is turnover less business expenses



The supplier did say that he could move the write-off to this tax year instead. My partner made his business limited at the start of the tax year, so we'd then be liable for corporation tax on it instead.


Seriously? So your hubby owed a large debt of around £20k to a supplier who is willing to write off the debt and to add to that they will move the written off debt to this tax year?........ Something doesn't add up here......

Start saving and when the WTC want their money back you can agree a payment plan.

lovinituk

nannytone wrote: »

how is the OP going to put the tax credit money to one side?
as i read it, this isn't a cash amount they have nbeen given, gut a debt written off.
it isn't cash they have ... just money they no longer owe!

The OP says it was profit once the debt was written off...

MsFoxtoyou wrote: »

Then right at the end of the tax year a supplier wrote off a large debt, which meant his accounts suddenly showed a £20,000 profit!

sheramber

The OP doesn't say how much the debt was only that the end result was a profit ( on paper) of £20000. e.g.The debt could have been £30000 , business loss £10000 so when debt of £30000 written off the business showed a profit of £20000.

I expect that all money arising in the business was ploughed back into the business since there was a large debt unpaid and no profit was expected.

arcon5

It's quite simple.

If company made a loss of say £20k then the net result is a profit of £0. No affect of 'household income'.
If company broke even, ie profit = £0, then the write off will see a profit off £20k.


Either way he's £20k better off. 20% corporation tax is he's making a profit = £16k richer company than before.

Remember though...
ltd company profits do NOT = household income
PAYE wage + dividends = income
the companyh is a separate entity.

If sole trader that's a whole different matter