[Rant] Tax Credits

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I tell you something, there is no wonder half the population (well, probably more) are on benefits. In my employment history, let's say I've never been on a brilliant wage and so have claimed tax credits to help top it up. This I appreciated from the Government as it allowed me to support my family. I have passed on higher paid offers in favour for job security and being looked after. This has many a time turned out to be the right choice as said offering companies have later gone under. The company I work for has fairly low overheads and so have managed to keep their heads above water through the recessions.

Now that things are little more stable, I decided, for one reason or another, it was time to make a few more quid and stop relying on the government helping me out. Plus if the Tories get their way, these benefits will eventually stop. I have decided that the best way for me to go about this is to take the leap to self employment. I can carry on doing work for my current (well it's technically now my past company) at a decent rate and also opens up opportunities to other things.

So, I ring up HMRC and register as SE, guy on phone was a right mardy so and so. I'm not even going into that here....

I then think, 'right, ring tax credits up and get that knocked on the head'. So, I spoke to a nice lady, I tell her my details including my P45 value and what I expect to earn over next 6 months (to end of financial year). I have no idea what I will earn but I was conservative about it and made the 2 figures equal about £20K. OK she says, we will put your amendment in post.

'I thought it would just stop' I exclaim.

'No. if your earning less than about £32k you are still entitled to something..' she says.

'OK' I said, well in that case I'm going to put anything you give me now into a separate bank account and then at the end of year when / if you ask for it back then it will all be there. Surely you cannot ask for more that you have given me since my notification to you.??

Her reply

'Well, actually, it is done over the 12 month period so if you make more than you told us last year then we will ask for the difference back'

HANG THE F**K ON!!!! So your telling me if I earn more than my £12K I have earned for the last god knows how many years, they I could owe you £000's because for the last 6 months I have needed that help?

Her - 'eeerrrr, yep. It's done over the 12 months'

but that is atrocious. I needed that money then as I was on low wage, Now I'm trying to better myself, your going to penalize me and make me worse off than I was in the first place by asking for it all back. Surely it should just cut off from your employment status change and re-factor from there on????

'......Well, that's how it is, sorry. Let us know if your estimate is out by £2.5k either way as soon as so we can re-calculate again.....'

'I don't want the money, can it stop?'

'No, sorry we have to keep paying you your entitlement......' headbang headbang headbang headbang headbang headbang headbang headbang headbang headbang headbang headbang headbang headbang

if things go how I hope, then it looks like I will owe them all they pay me from now until april (which will be in an account ready) AND most of what they have paid me for the last 6 months!

Wish I'd just stayed employed, sponging off the government like everyone else.......

Sorry, rant over.

 
Tax credits are indeed a bizare thing. Who would have thought someone would invent a tax system where the low paid don't pay any tax at all, and receive tax credit back.

My experience is for the self employed they base your 4 weekly payment on what you earned last year. If at the end of the year you have earned more than the estimate, they have never asked for any payment back. they just reduce next years payment assuming your higher earnings will continue.

On the other hand, if at the end of the year you have actually earned less than expected then they will give you more tax credits, and backdated for that year.

From what you say it appears they will only ask for some back if you have earned £2.5K more than the estimate.

There seems to be no way to turn them off, other than earn lots more (and pay lots more income tax) so you can't even turn off tax credits by pretending to earn more as you will be charged more income tax.

At least now with the much higher personal allowance, my income tax bill ranged from very low to non existent, so that has put an end to all that payment on account nonsense they used to do.

 
Mrs Flup gets tax credits, she is regularly pulling her hair out with it because they keep changing it about.

we had cause to ask my accountant to have a look at our finances recently, he told me he doesn't know a single person in the his professional filed who can work it out. He also told me that most of the tax credit advisors don't know either.

I can well believe it

 
Tax credits are the biggest single thing holding back progression in the uk.

One of my misses friends was left in the lurch when hubby fxcked off with another woman. Her friend is a TA and doesn't earn much, as they have kids, so she applies for tax credits and gets an award of over £800 per month.

So anything more she earns now will be reduced by a reduction in tax credits, and this she has absolutely NO incentive to improve her income.

This is complete madness.

No wonder social mobility has completely stalled.

Another blxxdy mess left by Gordon Brown.

AND

When Iain Duncan smith comes up with a new system which allows people to earn more, and have their tax credits reduced by less, so they are actually better off, he gets shot down!

Go figure

Ps. The simplest way to stop tax credits is not to fill in the forms in May next year and then the payments will cease. Reportedly 250,000 people did this, this year.

Why would you admit to earning more if you knew you would be asked to pay money back???

 
Of course the daftest thing is you tell hmrc on your tax return how much you earn.

Then tax credits ask you how much you earn.

clearly no communication between departments or joined up thinking involved.

I stumbled into tax credits by accident:

Years ago you got a married man's tax allowance that just increased the theshold before you started paying tax, but I wasn't married then.  By the time I did get married, you only go the married couples tax allowance (as it had become by then) if you had children.

It was some years before our daughter was born, and I hadn't kept up to date with the changes. But when Daughter entered the world, I phoned hmrc to find out how I could claim our married couples tax allowance as we now had a daughter.  That was when  I was told it had been replaced with tax credits and they sent me the form.  We now get child tax credit and working tax credit.

I just expected to reduce the amount of income tax I paid. I never expected the daft situation where they pay me more than I pay them.

 
the more they meddle with the system, the worse it all gets. I totally support increasing the minimum level at which you start paying tax, which should therefore reduce the dependence on Tax credits, but then I'm all for simplyfying the whole rediculous tax system started by Thathcher where to hide the real income tax levels in the UK they started all the back door taxations like taxing insurance premiums etc etc - costs a fortune to run and admin not just within government but within all businesses that have to collect and pass money over..

As you are now SE Barx, then you need to consider many creative accounting options to reduce how much money you have made, like buying tools, vehicles, and claiming fuel and other expenses. (You could even buy materials to re-sell on e-bay :innocent ). New businesses are not generally expected to make a profit in the first year, so you can keep you earnings within the expected £2.5k and actually be better off until you can ditch the tax credits. The other option is to go Ltd and employ yourself on the same wage you are on, you can then build up money within the business, then the company buys you a new van for work etc etc. Get a good accountant to give you advice.

 
Barx,

FWIW, I would say go Ltd. get an accountant Ltd. is circa £250.

Yes you have accountant fees every year, but that is manageable, and totally a Ltd. Co. expense, so fully tax deductible.

I would NEVER be Self-Employed unless I was absolutely forced to be.

I can put you in touch with an accountant if you want. First call is free, and they work in your geographical area.

Seriously look into Ltd. Co.

There are serious advantages that IMHO out weigh the accountant fees!

PM me if you wish, or you know how to get hold of me to discuss this further.

 
I have to agree tax credits are a nightmare! They stopped paying ours, Then we were told I earned too much then they said I eared too little! They then payed a lump sum into Mrs Ducks account and thats the last we heard from them probably until they want it back  :|   It does however go towards childcare which is more than half what I earn in a day!

To echo what Binky and sidewinder have said there are definitely a lot more advantages to being an LTD!!!

;)

:)  

:coffee

 
I appreciate the replies guys.

As far as going ltd is concerned I have previously been advised to steer away from this option as there are other implications. Higher tax bills, more stringent rules. The fact that I would still need the money out the company for family expenditure, etc. I don't think I understand enough of it to dive in yet, I only just understand what I'm doing now lol. I have calmed down a bit from last night (was riled). Going to have a chat with accountant see what his take is on it. Hopefully we will come up with a plan between us. ;)

 
You can't afford not to go limited. Hopefully someone can fill you in not using their phone on a Scottish moor! My tax bill was less than half what it would have cost me had I been in a partnership.

Has Steps done with those books?

 
Ltd, doesn't mean higher tax bills, quite the opposite, you take your wages as dividends - 5% less tax,  and it gives you limited legal liability. As SE you could be sued for all your wordly possessions including your house, car and TV.

 
Corporation tax for profits less than £300K is 20% per year

https://www.gov.uk/corporation-tax-rates

Income tax for profits from £10K to £41865 is 20% per year

https://www.gov.uk/income-tax-rates/income-tax-rates

The difference (or saving) boils down to National Insurance - so this is where the savings are to be made, less the additional costs of being Ltd versus a Sole Trader

The differences used to be more but no longer

Try this calculator!

http://www.companiesmadesimple.com/sole-trader-v-limited-company.html

 
Are you limited then?
No self employed.  That's class 4 NI IIRC. They just send us a quarterly bill.

Mrs PD earns even less than me (also self employed) and apparently we could claim an exemption from her having to pay any NI at all, but we have never bothered.

 
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You can't afford not to go limited. Hopefully someone can fill you in not using their phone on a Scottish moor! My tax bill was less than half what it would have cost me had I been in a partnership. Has Steps done with those books?
Indeed I have Apache, thanks very much.

I only moved them from shelf to cupboard last week whilst rugrat proofing the house. 

I can happily pass them on. 

 
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