Income falling by £70k - how do I claim tax credits?

meester

lil_me wrote: »

If someone came onto the forum who was self employed, stating their accountant said they should lie this year and say they were not working/only being paid £20 and should claim JSA, instead of the £40k they made last year, what would happen? They would be slated on this forum immediately.

Um, if they got £40k last year, but not working this year, they should claim JSA. I thought that was the whole point of National Insurance, so you can claim when you are not working.

Nobody's suggesting lying. But if someone asks if they can take some time off and legitimately through whatever means get paid money by the taxpayer, if that's what the system allows, then there's really nothing that can be done.

I see that as no different to this case, actually this case is worse as single person JSA from our taxes for one year = under 3k a lot less than this person is wanting to claim from our taxes. All that is different here is the name of the benefit (and that it would be illegal to lie on a claim for JSA).

But in this case I am giving with one hand and taking with the other. And I a giving substantially more than I could ever take.

Benefits should be what they were intended to be, to support those on low incomes, not keep someones high lifestyle for them while they make more money for themselves.

Low incomes? But you can claim tax credits up to about £66k. That's by design, the government are quite open about it. And they deliberately exclude pension payments from the scope of income as well.

So if you are a 50 year old Company Director, getting paid £200k/year into your pension, with no salary, that's entirely within the scope of what the government planned. The government's view is that saving for retirement is a very good thing, because it means they won't have to pay that person benefit in retirement. So they strongly incentivising it, by allowing scenarios like the one outlined.

If this is what all people who have a small business do, use our money to make them more money (I am sure the honest ones do not), maybe the whole benefit system needs looking at.

Accountants and tax advisers spend a lot of time investigating ways for business people to pay as little tax as possible. So do high paid individuals in general. There really aren't many high paid people (>£100k) that don't have some form of tax avoidance scheme in place (including, let's not forget, our illustrious MPs, who avoid HUGE amounts of taxes), offshore, loans, limited companies, etc. Milton Friedman, who invented taxation at source, said that it was his biggest regret because it allowed the government to extract much more tax money and increase the size of the state. The consequence of this is that if you are not an employee, you can pay far less tax, proportionally than someone who is (companies will also help high worth staff avoid tax). That's just one of the reasons why you need to run your own business to become wealthy.

This case has annoyed me so highly that I have written several letters now including to national press and my local MP to express my anger that this sort of thing can openly take place with copies of the posts made on the forum.

I'm sure they will share your outrage.

Let's hope we see the scope of the welfare state reduced, and the absurdity of Gordon Brown having put over 50% of the population in receipt of one form of benefits or another. In the mean time, I will be doing whatever I can reduce the size of my contribution to the general waste of big government.

No wonder taxing is so high if we're all subsidising similar lifestyles while someone is putting what they could pay themselves into the bank.

Yes, life is unfair. But as the Labour party have just found having tried to tax wealthy foreigners, it's not always possible to make things fair.

I don't care which legal loophole they are using, it should be as illegal and as 'fiddling dole mongers' as some call it because when it comes down to it, it's the same thing, they are lying about how much they are paid to claim more of taxpayers hard earned money.

Well no, not really. The first is lying, and the second is using the law sensibly. In this case the capital and pension exemptions are DESIGNED so that even very rich people can claim.

I suppose the only difference is that those who do this are likely to have a lot more money available to them than those who work 'fiddle jobs' which then makes me feel even more anger as to where taxes are wasted.

It's a big world out there. My contribution to the taxation of this country is probably net about £25k. I am happy with this level. If I felt that I was being taxed excessively, I would probably move to Singapore and contrbute to their economy instead. I would be quite happy to pay the taxes there, which work out just under 13% on £100k earned, and to see far less of my money have to go towards obtaining a decent education.

For the mean time, I will continue to work and pay taxes (as little as possible) in the UK.

lil_me

Maybe I should add my partner is also self employed and wouldn't even consider paying himself 'just the minimum wage' to increase tax credit income. I suppose it just depends how you choose to live your life and run your business, maybe he's what some would call 'too honest'. He became self employed to support himself and his family, not maximise his income through tax credits. Wonder what state the benefit system would be in if everyone who had their own business/is self employed did....

Murphy_The_Cat

lil_me wrote: »

Maybe I should add my partner is also self employed and wouldn't even consider paying himself 'just the minimum wage' to increase tax credit income. I suppose it just depends how you choose to live your life and run your business, maybe he's what some would call 'too honest'. He became self employed to support himself and his family, not maximise his income through tax credits. Wonder what state the benefit system would be in if everyone who had their own business/is self employed did....

I'm not 100% sure, but I think taht he would have needed to go the Ltd Company, joint Company Directors route (with you) to be paying himself in the most tax efficient/NI efficient way possible. Being self employed doesn't work in this respect.

But doesn't your partner employ an accountant to make sure that he pays what he HAS to pay ? if not, IMO, his accountant isn't doing a good job for him.

meester

lil_me wrote: »

Maybe I should add my partner is also self employed and wouldn't even consider paying himself 'just the minimum wage' to increase tax credit income. I suppose it just depends how you choose to live your life and run your business, maybe he's what some would call 'too honest'. He became self employed to support himself and his family, not maximise his income through tax credits. Wonder what state the benefit system would be in if everyone who had their own business/is self employed did....

Self-employed is different.

Many self-employed people are operating as a Limited Company.

See

http://www.ifs.org.uk/budgets/gb2006/06chap9.pdf

for some history

In 1999, the Chancellor introduced a new starting rate of corporation tax at just 10%. This applied to companies with taxable profits of up to £10,000, and provided some benefit to those with taxable profits of up to £50,000. Previously, firms with taxable profits of up to £50,000 were taxed at the standard small companies’ rate of 20%. In 2002, this starting rate of
corporation tax was reduced to zero for firms with up to £10,000 of taxable profits.
The objective of these measures was to encourage the formation and growth of micro businesses. According to Budget 1999, ‘the 10 per cent rate will encourage investment and enterprise’.17 In Budget 2002, the zero rate was introduced ‘to provide further support to new
and growing companies’.18 The benefit of this low starting rate was clawed back as the level of profits increased, so that there was no benefit at all for firms with annual taxable profits of £50,000 or over.
The zero rate, in particular, provided a strong incentive for self-employed individuals to set up small companies. Dividends paid by companies are taxed at a lower rate than income from employment, and dividends are not taxed at all for individuals paying the basic or lower rates of income tax.19 A sole trader can easily convert employment income into business profits simply by paying him or herself a lower wage or salary. By converting up to £10,000 into profits and paying these to him or herself as a dividend, the sole trader could enjoy a substantial tax saving.
Not surprisingly, the main effect of this zero starting rate of corporation tax was to encourage existing self-employed individuals to incorporate, to take advantage of this tax saving. This development was widely predicted,20 and should have come as no surprise to the Treasury.
The economic benefits, if any, of converting the legal form of existing activities from selfemployment to small incorporated businesses were never clear. In 2004, the government responded to this development by restricting the benefit of the zero starting rate of corporation tax to profits that were retained by the company. Profits paid out as dividends were effectively taxed at the standard small companies’ rate, which by then had
been reduced to 19%. This removed the main tax advantage of the measure for individuals replacing one form of cash income (salary) by another (dividends). In his December 2005 Pre-Budget Report, the Chancellor announced the abolition of the starting rate of corporation tax altogether. Given where the system had got to, this was an entirely sensible simplification. However, we are now back to precisely where we were in 1998, with profits of up to £50,000 being taxed at the standard small companies’ rate, regardless of whether they are paid out as dividends or retained by the firm (see Table 9.2). In the mean time, thousands of individuals have incurred effort and expense to set up legally incorporated businesses that they would not have otherwise have done.
This episode provides a clear example of how the introduction of distortions into the tax system can have unintended effects on economic behaviour. The impact on tax revenue was large enough for the Chancellor to be obliged to close a ‘loophole’21 in the tax system which he himself had introduced only three years earlier.

Literally hundreds of thousands of people year incorporated to save tax. Some still do. It's entirely logical.

Murphy_The_Cat

cough, cough, ahem, cough, cough

barbarawright

meester wrote: »

Actually I will still be contributing £2k/year council tax, about £20k in corporation tax, and numerous indirect taxes, including VAT, Car Tax, Fuel Duty, Excise Duty, etc. And my children are being educated to a higher standard than the state offers, out of my own pocket.



Yeah, reading about them this morning.

http://www.dailymail.co.uk/pages/live/articles/news/news.html?in_article_id=513966&in_page_id=1770

Apparently one in five kids are growing up in family's dependent on benefits. In massively prosperous places like Islington, 46% of kids grow up in families where nobody works.

Let's hope something changes soon.

You kids will be on benefits, just like the kids in that article. No difference - people play the system in different ways and you have no way of knowing that others who are unemployed haven't done exactly what you're doing - worked hard and saved so they can afford to have a holiday on benefits for a while. And while you may be sending your children to private schools and using private healthcare, who do you think has paid for the education of your childrens' teachers and your doctors? The same hardworking taxpayers who will be subsidising your new benefits lifestyle.

meester

barbarawright wrote: »

You kids will be on benefits, just like the kids in that article. No difference - people play the system in different ways and you have no way of knowing that others who are unemployed haven't done exactly what you're doing - worked hard and saved so they can afford to have a holiday on benefits for a while. And while you may be sending your children to private schools and using private healthcare, who do you think has paid for the education of your childrens' teachers and your doctors? The same hardworking taxpayers who will be subsidising your new benefits lifestyle.

Except that I'm probably overall paying more tax than you.

Nobody is subsidising me for anything.

It is true that I pay less tax in % terms than some others, but that's just sensible money management.

liney

Email the PM here:

http://www.pm.gov.uk/output/Page821.asp

liney

meester wrote: »

Except that I'm probably overall paying more tax than you.

Nobody is subsidising me for anything.

It is true that I pay less tax in % terms than some others, but that's just sensible money management.

You're kidding yourself. Is this how you have persueded your wife that it's not scrounging?

Murphy_The_Cat

liney wrote: »

You're kidding yourself. Is this how you have persueded your wife that it's not scrounging?

it isn't - its following the principles that are firmly encouraged by the site owner.