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BobProperty

Dithering_Dad wrote: »

I'm considering living off tax credits. I have my own limited company where I pay myself minimum wage (about 11k) and take the rest as dividends. I once went to www.entitledto.co.uk to see what I'd get if I only earned 11k. I found that I'd be 'entitled to' a further £11k....

If you are a director you are doing it wrong then. You don't need to pay yourself minimum wage, just pay yourself enough to clock up your NI / PAYE pension credit. Watch out for the new "sour grapes" legislation following the Arctic Systems case though.

Dithering_Dad

BobProperty wrote: »

If you are a director you are doing it wrong then. You don't need to pay yourself minimum wage, just pay yourself enough to clock up your NI / PAYE pension credit. Watch out for the new "sour grapes" legislation following the Arctic Systems case though.

I know people who pay themselves about £5k, which is just above the level for NI contributions, but my view is that the Inland Revenue are just like a bunch of burglars, who given two properties will rob the one with the old windows and no burglar alarm (i.e. the one that looks easiest). Given two contractors - one who pays tax on minimum wage and one who pays no tax at all, the revenue will 'burgle' the one taking the mickey...

My accountant (SJD) were the ones who suggested the minimum wage route, I guess for this very reason. They also suggested paying myself the minimum amount for 'use of office' and other such perks. It's really aimed at keeping yourself off the IR35 radar screen. TBH I'd rather pay a bit more tax than have to tackle a full blown tax review.

Not sure what the revenue would make of my children's/working tax credit idea, though if I put everything into my pension, then there is nowt that they could do.

BobProperty

Dithering_Dad wrote: »

I know people who pay themselves about £5k, which is just above the level for NI contributions, but my view is that the Inland Revenue are just like a bunch of burglars, who given two properties will rob the one with the old windows and no burglar alarm (i.e. the one that looks easiest). Given two contractors - one who pays tax on minimum wage and one who pays no tax at all, the revenue will 'burgle' the one taking the mickey...

The revenue will be looking for dividend / NI dodges, not the PAYE & NI on the difference between £5k and £11k. Besides, it is actually in the rules somewhere, directors are not subject to minimum wage rules.

Dithering_Dad wrote: »

My accountant (SJD) were the ones who suggested the minimum wage route, I guess for this very reason. They also suggested paying myself the minimum amount for 'use of office' and other such perks. It's really aimed at keeping yourself off the IR35 radar screen. TBH I'd rather pay a bit more tax than have to tackle a full blown tax review.

There's lots of others who take the approach I'm suggesting.

Dithering_Dad wrote: »

Not sure what the revenue would make of my children's/working tax credit idea, though if I put everything into my pension, then there is nowt that they could do.

That is a classic example of not thinking through legislation. I think you are correct in your suggestion. I am in a similar position in that I could put all profit (whenever I actually manage to make any) into my pension fund, my income would be £0, the tax man gets nothing, the CSA get next to nothing and I would be entitled to maximum WFTC benefits. It would get to the point that it would be better to overfund your pension and pay tax on the overfunding rather than lose all the benefits, that's how stupid the system is.

Dithering_Dad

BobProperty wrote: »

That is a classic example of not thinking through legislation. I think you are correct in your suggestion. I am in a similar position in that I could put all profit (whenever I actually manage to make any) into my pension fund, my income would be £0, the tax man gets nothing, the CSA get next to nothing and I would be entitled to maximum WFTC benefits. It would get to the point that it would be better to overfund your pension and pay tax on the overfunding rather than lose all the benefits, that's how stupid the system is.

Thanks for the info, you make a good point. I'll have to speak to my accountant to find out why he suggests the min wage approach.

As far as the WFTC and CTC are concerned, they have put a huge burden on the people who have to fill in the forms, the revenue who have to process the forms and the whole system has been massively defrauded to the point where they had to close down their internet site. What a shambles. In the words of Adolf Hitler "one good kick and the whole rotten edifice will come crashing down".

Maybe the Conservatives should concentrate on repealing the ex-chancellors ill-conceived tax and pension credit systems rather than inheritance tax because Labour can hardly steal their ideas here as they invented the mess in the first place!

Sorry to hijack and rant on, but I can't stand Labour and their communist ways of getting everyone relying on the State (either for handouts or employment) so that they don't dare vote them out of office!! Grr :mad: .

Lotus-eater

I pay myself just over 5k and the rest in dividends, a couple of years ago we had a really bad year and earn't very very little, I was a bit shocked at the amount of tax credits we got, when the following year the profit went up again, we still got huge tax credits. I was so worried about having to pay them back, we put all the money into premium bonds and in fact its still there.
Its more than possible to live on tax credits, just leave the profits in your business, I know someone who has over a 100k in the bank doing that, pays himself a very low wage a year, gets huge handouts....... whether it will last is another thing.

Generali

Lotus-eater wrote: »

I pay myself just over 5k and the rest in dividends, a couple of years ago we had a really bad year and earn't very very little, I was a bit shocked at the amount of tax credits we got, when the following year the profit went up again, we still got huge tax credits. I was so worried about having to pay them back, we put all the money into premium bonds and in fact its still there.
Its more than possible to live on tax credits, just leave the profits in your business, I know someone who has over a 100k in the bank doing that, pays himself a very low wage a year, gets huge handouts....... whether it will last is another thing.

It's the worst lie in socialism. It keeps the poor impoverished while the elite prosper.

At least under capitalism the poor can climb out of poverty, hard as that may be to do. If you've got a system (like ours) that will take away 70 or 80p (or even more) of every pound you earn if you reject welfare and try to sort yourself out, where's the incentive?

BobProperty

Generali wrote: »

It's the worst lie in socialism. It keeps the poor impoverished while the elite prosper.

At least under capitalism the poor can climb out of poverty, hard as that may be to do. If you've got a system (like ours) that will take away 70 or 80p (or even more) of every pound you earn if you reject welfare and try to sort yourself out, where's the incentive?

Exactly. To flesh out my extreme but technically valid point:
Divorced businessman becomes success and makes £100k profit (within ltd co)
Ex wife is on IS and gets minimum CSA payments from husband for their 3 children. One other child lives with businessman.
As it stands:
Businessman declares £0 income £100k into pension fund.
Income £0 from company. About £7k in benefits plus rent and council tax benefits and free school meals for kid. Pays £10 pw to CSA. Value ~£10k pa.
Ex wife. Gets IS of about £10k plus rent and council tax benefits and free school meals for kids. Loses £10 pw for CSA money. Value ~£15k pa.

If he pays himself the £100k in one year the following happens:
No benefits
25% (after some deductions) goes to ex-wife via CSA (can't remember exactly how it's calculated but guess between £10k and £22k)
Pays roughly £20k in NI and £32k in tax.
Ex wife gets CSA contributions. Amount takes her out of IS so now loses all benefits except CB and some small contribution to Council Tax (etc.?)

So scenario 1 both parties get about £25k (including non-monetary benefits) in total off the state, plus one has £100,000 in pension fund.
Scenario 2, state gets £52k, lets say ex-wife gets same as in scenario 1, value £15k, businessman gets £33k but loses £7k in benefits.
Summary: ex-wife and 3 kids no better off.
state gets £52k in one scenario and pays out ~£25k in the other.
businessman either gets ~£10k in benefits and £100k in pension fund or gets £33k. Or, more cynically, he needs to generate £100k to make a net £23k. What an incentive!

I think that sums up quite well why the system can't work in the long term.

Dithering_Dad

I wonder if, in light of the Artic case, the government will bring PAYE into line with Dividends in that a husband and wife will be able to share their tax free allowances to their advantage? Nope, they will bring in some mad scheme to get at contractors, while also catching lots of small businesses where a husband and wife work together in a shop.

They change the tax system to stop a relatively small amount of people from paying less tax, but then make the system so complex that they have to take on more administrators and investigators which makes it so expensive that it costs more to run than you get back in tax from people you have caught.

Look at the CSA for proof of this sort of madness.

BobProperty

Dithering_Dad wrote: »

I wonder if, in light of the Artic case, the government will bring PAYE into line with Dividends in that a husband and wife will be able to share their tax free allowances to their advantage? Nope, they will bring in some mad scheme to get at contractors, while also catching lots of small businesses where a husband and wife work together in a shop.

Of course they will (bring in a mad scheme). A Tory suggested paying NI on dividends many years ago until someone explained that all the pensioner/widows relying on a bit of dividend to supplement their pensions wouldn't be happy. (like "if you want to lose us the next election then...")
IR35 only exists because of some union complaining about hairdressers being exploited combined with a revenue attempt to get money out of a category of workers who do not comfortably fit in with the revenue's system. Ignoring that they were forced into their way of working by agency laws in the 70s. Yet another example of not thinking through the consequences of legislation.

Generali

A 15-20% flat rate on all consumption, capital gains and income (personal and corporate) would provide all the money that this govt needs to wet the wall with. You could sack 10s of thousands of civil servants too.