Tax credit disaster for self employed

NYM

Hmmm....

How was it accounted for in your OH's accounts when he ceased sole trading?

I'm very curious ... Why didn't the creditor take legal action to recover the debt ?
I'm fairly sure they can't just choose to 'write if off' without due cause and shifting 'debt' around sounds very suspect if they have suggested to 'write it off' at a time suitable to your husband....

MsFoxtoyou

Just to be clear this is not money that we now have in the bank, as nannytone pointed out, it's just money that we no longer owe. As such, according to his accountant the company made a profit. But the money we have to pay the bills has only been my earnings which don't go very far. There is certainly not a hope of putting any money aside to pay it back cos we are only just getting by thanks to the tax credits.

NYM

MsFoxtoyou wrote: »

Just to be clear this is not money that we now have in the bank, as nannytone pointed out, it's just money that we no longer owe. As such, according to his accountant the company made a profit. But the money we have to pay the bills has only been my earnings which don't go very far. There is certainly not a hope of putting any money aside to pay it back cos we are only just getting by thanks to the tax credits.

Before the debt was excused, were his losses offset against income ?

MsFoxtoyou

tomtontom wrote: »

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

He was making a loss, yes, so that's what I thought. But it doesn't see to work like that according to his accountant. She did try to explain it, something to do with crediting the write off so it goes in the same column as sales, but then it makes it look as if the business was profitable. It’s not yet!

MsFoxtoyou

NYM wrote: »

Before the debt was excused, were his losses offset against income ?

Yes, as that's what tax credits told us to do.

Icequeen99

MsFoxtoyou wrote: »

tomtontom wrote: »

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

He was making a loss, yes, so that's what I thought. But it doesn't see to work like that according to his accountant. She did try to explain it, something to do with crediting the write off so it goes in the same column as sales, but then it makes it look as if the business was profitable. It’s not yet!

It does work like that - presumably whatever figure is being given is the profit figure. So it has cancelled out the loss and created a profit.

Although you are saying this isn't money you have had, you have received increased tax credits because of the debt. At some point you will have been allowed to deduct the debt amount in the business (to either create a loss or reduce a profit) even though you didn't actually pay anything out. So you had more tax credits that you would have done. Now the debt is written off, it is only fair that the situation is reversed.

IQ

lovinituk

arcon5 wrote: »

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

The ltd company was formed in the following tax year. The written off debt related to the end of the previous tax year when the OPs other half was still a sole trader. That's how I understood it anyway.