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Do dividend payments affect workin tax credits???

Discussion in 'General Business Forum' started by M&b123, Apr 26, 2011.

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  1. M&b123

    M&b123 UKBF Newcomer Free Member

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    Hello!!

    I'm after some advice with regards to dividend payments and working tax credits.

    I have recently started my own ltd company. Now I grasp the basics of paying myself the minimum personal allowance over the course of the year, then top up my wages with dividend payments. Now here is what I need advice on.

    I have a family of 1 and another on the way. My partner claims working/child tax credits for our first child already on a salary of £20,000. When we have our second child, again she will claim for working/child tax credits. My salary is based on the personal allowance rate, an therefore puts me on low income. If I was to apply for working tax credits too, would any dividend payments I receive affect any money I may have to pay back to hmrc for tax credits...?? Would I have to declare dividend payments to hmrc as extra income??? I'm unsure on this area as I'm told then any dividend payments I receive are tax free!!

    Any advice would be greatly appreciated!!
     
    Posted: Apr 26, 2011 By: M&b123 Member since: Apr 26, 2011
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  2. Philip Hoyle

    Philip Hoyle UKBF Ace Free Member

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    Yes, you have to declare dividends as part of your income for tax credits and also declare them on your personal tax return. Dividends aren't tax free. They come with a nominal 10% tax credit which discharges the tax liability for a basic rate taxpayer - your "income" is the gross dividend with the tax credit added to the actual amount you receive.
     
    Posted: Apr 26, 2011 By: Philip Hoyle Member since: Apr 3, 2007
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  3. M&b123

    M&b123 UKBF Newcomer Free Member

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    Thank you. But when my second child arrives and I apply for working/child tax credits how do I avoid getting hmrc billing me for overpayments on tax credits?? Because I'm going to put down my basic salary on the form but I do not know what amount I will receive in dividends over the course of the year!
     
    Posted: Apr 26, 2011 By: M&b123 Member since: Apr 26, 2011
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  4. UKSBD

    UKSBD Not a real duck Staff Member

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    Is your partner getting tax credits just based on her income or on your combined income?
     
    Posted: Apr 26, 2011 By: UKSBD Member since: Dec 30, 2005
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  5. M&b123

    M&b123 UKBF Newcomer Free Member

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    We currently receive credits solely based on her income.
     
    Posted: Apr 26, 2011 By: M&b123 Member since: Apr 26, 2011
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  6. UKSBD

    UKSBD Not a real duck Staff Member

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    Did you have any income whilst she was claiming the tax credits, and are you living together as a couple?

    You do know that tax credits is based on household income and you don't normally claim as 2 individuals but as a couple with the combined income taken in to consideration?

    People claiming as a single person rather than as a couple is apparantly one of the most common reasons for overpayment.
     
    Posted: Apr 26, 2011 By: UKSBD Member since: Dec 30, 2005
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