Tax Credits - Deprivation of Income

Tax Credits - Deprivation of Income

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Evening all,

Considering a plan of attack involving tax credits. Essentially a husband and wife partnership has incorporated in 2012/13 after making a loss due to investment. This sets the hypothetical tax credit claimant couple's income at £nil to date for 2012/13.

The business seems to be doing well and is growing. I am struggling to decide if it is reasonable to issue 2x director based "salaries" at £1,960 each (£3,920 total to stay below £6,420 tapering limit) to allow for full entitlement to WTC and CTC for 2012/13 (pro-rated).

The remainder of the couple's living costs for the 2012/13 year could quite easily be recouped via mileage claims at SMRS rates and repayment of the DLA resulting from incorporation.

Plainly, I'm constructing this to maximise my client's income although there is a degree of commerciality to rely upon in the sense that the money retained in the business will be reinvested in stock and premises in the near future.

What I want to know is if this flies in the face of the "Income Deprivation" rules for Tax Credits purposes? I don't want to be responsible for a clawback in the future!

What's your general approach when advising on these matters?

Cheers for reading!

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By cmiskin
04th Sep 2012 12:53

NMW and Hours Worked

See previous discussions on this subject:

https://www.accountingweb.co.uk/anyanswers/question/working-tax-credit-and-directors 

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