My husband is a company director of a new company......?

Question

He is not drawing much wage at the moment , but when he does get dividend payments, do these have to be declared to the working tax credits people, as my friend says they are not taxable? I cant see this being true though. It will be hard to forsee what he will have got in Dividends by next March 31st, and if he does make some money we will owe the tax credit people money back. (I have no problem paying this back before you all start on at me, I just would rather not get it in the first place!) But how do I do this when I cant tell them how much he might earn this year?

Answer 1

First let's clear up any possible confusion.

First sentence .... "wages" are not the same as "dividends". Ever. Wages are a reward for work done (classified as earned income) and dividends are a return on an investment made (classified as investment income).

"...do these have to be declared to the working tax credits people.." Yes.

"...my friend says they are not taxable" Get some new friends. Ones who know what they are talking about. As confirmed above dividends ARE taxable but the rate at which they are taxed depends on the total income for the year.

"It will be hard to forsee what he will have got in Dividends by next March 31st" Agreed. This is always a problem.

"....if he does make some money we will owe the tax credit people money back. (I have no problem paying this back before you all start on at me, I just would rather not get it in the first place!)" Do what others do. Don't claim it in the first place. Wait till the Tax Return for the year is finished, after the year is over, then make a back claim for any tax credits due for the previous year.

Hope this helps.

Answer 2

Dividends are a taxable income but are paid net of tax.

What is important to note is that they can only be paid from company profits. Therefore, if the company is not profitable, it will be illegal to pay dividends.

Tax credits: This is a trap, so be very careful.

Under normal circumstances, directors are not employees of the company UNLESS they have entered into a Contract of Employment with the company. If there is no contract, then a claim for Tax Credits will be refused, unless you, as the claimant's partner, are working for the necessary number of hours each week.

The above does NOT affect a claim for Child Tax Credit which is not dependent upon someone working.

Be aware, however, that once a Contract of Employment has been entered into, the National Minimum Wage then comes into effect.

Talk to the Tax Credits Helpline [0845 300 3900] for advice on providing estimates of future income.

Hope this helps.

Answer 3

Dividends I think count as income so they are taxable, unless they're taxed before your hub gets them.

On the tax credits, there's no relief 'cos of this stupid Govt's way of calculating them in advance.

Answer 4

Dividends ARE taxable - but at a lower rate than income.  At least, that's my understanding!