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Working Tax Credit - For a Ltd company director

One of my clients has asked me if he would be entited to any working tax credits based on his minimun salary of £6,475pa from his limited company. His dividends are £65k pa.

I would be surprised if he gets any tax credits. Tax credits is one area I am very weak on.



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His dividends of £65k would be included giving him a total income of say £71k.

At that level he would not get any entitlement.


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Dividends are counted as 'other income'

For tax credits the grossed-up level of dividends is used to calculate income - so the effective deduction rate for dividends is 45.6% not the 41% for salaries/profits/savings.

The first £300 of all 'other income' (rental income, dividends, interest etc) is ignored.

It is just concievable that his family could get tax credits if, for example, the salary and dividend is his family's only source of income, and he has at least four children all severely disabled - then his family would be entitled to £40 a week.




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What about retained profits?

Thanks for the helpful response.

What if the director decides to just on minimum salary and lives off his savings. He just holds on to his profits in the company as retained profits. Are retained profits counted as other income?


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