Director's DLA draw and Tax Credits | AccountingWEB

Director's DLA draw and Tax Credits

I have a client with a small company, floated 8+ years ago with his own capital. His wife does the modest bookkeeping for £480 per year. They have 2 children under 16. He's still drawing back his original DLA (though nearly expired now) and has had no salary or divis to date. He also has a small sole trade (completely independent) which has profits of around £2k to £3k per year, but reducing in favour of the Company trade. How does he stand for Tax Credits with regard to the 'hours worked' requirement of "24 hours between you"? The wifes wages equate to approx 1.5 hrs per week on min wage. He genuinely works a varying 30 - 40 hour week over the two businesses but, if you go by a minimum wage prorata, his sole trade is equivalent to (max) only 9.5 hours. Since the balance of their financial needs is taken from the Company, drawn back from his DLA, there's no payslip proof of the other 16'ish hours worked.

Does it matter that we can't support the 'hours worked' declaration? We don't want to mess up the renewal. What's spooked me is looking at the HMRC guidance where they say that "in families with an income of £9485 a year or more, at least one adult is assumed to be working 30 or more hours per week (consistent with minimum adult wage rate of £6.08)..". If that's their assumption, will HMRC accept an hours worked declaration of say, 35 hours, when the total income for him is only equivalent to 9 or 10 hours at minimun wage?! We have to handle the renewal this time because the wife has been spooked by HMRC rudeness previously, and I'm just not sure of the rules in this. I cannot see DLA's mentioned in the Tax Credits guidance but assume/hope that DLA drawings are NOT to be treated as 'notional income'!! See page 22 of the 2012-13 guidance.

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Not very tax efficient

Kent accountant |
Kent accountant's picture

Thanks, good observation.

accountsman |

Salary could still have been run

JCresswellTax |
JCresswellTax's picture

£NILsalary is better in this situation than a p allownce salary

NewACA |


stephenkendrew |

OK, point taken

NewACA |

I have read many times that

FrogHappy |

Tax Credits Team guidance

DMGbus |
DMGbus's picture

That's very useful to know.

FrogHappy |

Contract of employment for directors?

Alf |


aiwalters |
aiwalters's picture

You have to weigh up the

FrogHappy |