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

tigtag02

michaels wrote: »

I'm PAYE but this thread has got me thinking. Could I pay a large proportion of my salary in to my pension for one year and live off reduced salary plus savings and therefore qualify for max tax credits for the year so that net amount of salary forgone is much less than amount added to my pension?

You're taking the pi$$ right

michaels

I personally know people on incapacity benefit who are much fitter than me and others on income support and free housing who work cash in hand, most of the tradesmen who quote for work offer VAT free prices for cash and yet I don't hear the clamour against these people who are illegally cheating the benefits system. Yet if people suggest following the rules but looking to benefit as much as possible they are slagged off. I pay a huge proportion of my income as tax - first paye and NI, then vat, fuel tax, council tax etc. A lot more of of what I earn goes as tax than I receive. Stamp duty means I can not afford to move in to a house big enough for my children not to have to share a room. Why is it that working and trying to follow the rules to your advantage is so wrong but being on the fiddle is fine?

NAF_3

I have to say again that declaring all this to HMRC and seeing what they say is the best option. Everyone else is trying to interpret rules for them.

The only way they could put a figure on your 'Deprivation of Income' ie. diveidends is to compare your company to a similar company and see what they pay, if they pay anything.

margaretclare

michaels wrote: »

I personally know people on incapacity benefit who are much fitter than me and others on income support and free housing who work cash in hand, most of the tradesmen who quote for work offer VAT free prices for cash and yet I don't hear the clamour against these people who are illegally cheating the benefits system. Yet if people suggest following the rules but looking to benefit as much as possible they are slagged off. I pay a huge proportion of my income as tax - first paye and NI, then vat, fuel tax, council tax etc. A lot more of of what I earn goes as tax than I receive. Stamp duty means I can not afford to move in to a house big enough for my children not to have to share a room. Why is it that working and trying to follow the rules to your advantage is so wrong but being on the fiddle is fine?

Being on the fiddle is NOT fine. If you personally know people who are defrauding the system in the ways that you say, it should be your public duty to 'shop' them. Why haven't you?

I recently read a newspaper item in which a benefits fraud investigator said that if she had double the resources, double the staff then she would be able to find twice the amount of fraud. 'It's a bottomless pit' was what she said, meaning that the problem is massive.

These people are stealing from us, the taxpayers, and I can't see why anyone writes in a forum like this that they 'know personally' instances of fraud and have done nothing about it.

Margaret

meester

michaels wrote: »

I'm PAYE but this thread has got me thinking. Could I pay a large proportion of my salary in to my pension for one year and live off reduced salary plus savings and therefore qualify for max tax credits for the year so that net amount of salary forgone is much less than amount added to my pension?

Best thing to do is read the tax credits brochure:

http://www.hmrc.gov.uk/leaflets/wtc2.pdf


And then if unclear, contact HMRC on their helpline.

But in answer to your question, it would appear from the brochure above, that what you are proposing is ENCOURAGED by the government, and is a good idea, if it suits your circumstances. The government is VERY keen for people to save for retirement. Hence pension payments are exempted:

However, contributions to any HM Revenue & Customs registered pension scheme (such as an occupational pension scheme, a personal pension plan or retirement annuity) and payments under the Gift Aid or Payroll Giving schemes should be deducted when you work out your income for a tax credit claim. If you made personal pension or retirement annuity contributions, Gift Aid payments or a trading loss, please phone the Helpline for a working sheet (TC825) to help you to work out the income to enter in your tax credits claim.

Note that this also refers to Gift Aid - which means that you can make charitable donations and get effective tax relief of up to about 60% on donations to your chosen charity.

So yes, you can make a personal pension payment (of up to 100% of your salary) and get tax credits.

If you earn £21k for instance, and give up £14k, then you would get tax relief on the £14k going into the pension (£2.8k), and tax credits back of £5,460 (assuming your entitlement is that high), based on 39% tax credit withdrawal rate.

It rather depends on your income and ability to live off a reduced income, and the amount of tax credits you would get, which in itself is determined by how many kids you have got. Also remember that you get an effective 80% off child care, on top of yor base, children, spouse, etc. allowances, providing that both partners are working. This is childcare costing up to £9,100/year (you get £7,280 back from the government). This is for children all the way up to age 16. The allowable types of care are:

• registered childminders and nannies
• after-school clubs
• ofsted registered nurseries and playschools
• registered agency nurser or domiciliary worker

But NOT private schools. Basically you can private schooling paid for until normal school age (5), and after that you can only get out-of-school care paid for (of whatever kind, including that provided by private schools).

Murphy_The_Cat

meester, do you know that your Company can pay for your childcare charges, as a legitimate business expense (within certain criteria) - leaving you and the Company with a Nill tax & NI charge ?

cyclonebri1

Meester, I have just read this thread from start to present end. I have nothing to offer in the way of advice, (yes I know, "don't post then") but have a few observations very much from a laymans point of view.

You have staunchly stuck to your guns and tried to keep things on topic, defending your actions despite the majority view and criticism you have received. Most would have sworn and left by now. I admire that, but I don't fully believe your motive, I am sure you knew what to expect.

You appear to have a very strong knowledge of the benefit system, I know you could have researched this for your "plan", but again, I'm not sure why you are continuing to post, still trying to suss your intent.

So, interesting scenario, play on.

PS. I am not posting any view on the original subject, just the underlying plot, I'm sure there is one:rolleyes: :rolleyes: :rolleyes:

meester

cyclonebri1 wrote: »

Meester, I have just read this thread from start to present end. I have nothing to offer in the way of advice, (yes I know, "don't post then") but have a few observations very much from a laymans point of view.

You have staunchly stuck to your guns and tried to keep things on topic, defending your actions despite the majority view and criticism you have received. Most would have sworn and left by now. I admire that, but I don't fully believe your motive, I am sure you knew what to expect.

You appear to have a very strong knowledge of the benefit system, I know you could have researched this for your "plan", but again, I'm not sure why you are continuing to post, still trying to suss your intent.

While I do spend a bit more time searching out information (which is freely available on HMRC's site) and making myself better-informed, we have come quite some way in this thread, and the input of other posters has been helpful, in pointing me towards firstly the issue of being underpaid for a job (my original hunch about income deprivation appears not to pertain), then to pensions, and now having found out that my thoughts are far from original (I don't really have much background in benefits, pretty much have just read a few documents on HMRC's site, which anyone else could read: I generally read more about company taxes), and that there are a variety of creative ways to get tax credits, most of which revolve around declaring yourself as self-employed, such as as a mature student, doing work as a tutor (most of which is non-teaching soft time), declaring yourself a professional landlord: http://www.landlordzone.co.uk/forums/showthread.php?p=62373, etc.

It's nice to discuss things, it's easier than working things out with no echo chamber, even if I do much of the talking myself. So I have a better idea on the relative merits, financial positions and retained capital after a year etc.

I'm all for creative ways to claim tax credits, they are absurd, but that is 100% what this site is about, and totally legal, so let's go ahead

michaels

I see the bit you are worried about :

if you work or provide a service for free or less than the going rate, in which case you are treated as getting the going rate for the job if the person you are working for or to whom you are providing the service has the means to pay. This does not apply if you are working as a volunteer (for example, helping out in a charity shop or a Citizens’ Advice Bureau) or you are on an employment or training programme.

Also interesting that potentially there are lots of other benefits that can then be claimed based on your 'tax credits' income Question is do I want to give up 26k net to put 52k in to my pension next year?

Murphy_The_Cat

Hello meester

I think that I may have some very good news for you.
If you download todays budget and look for article 4.89 on page 80, it will tell you that is has postponed doing anything about 'income shifting' until April 2009.