Can A Director Of Their Own Limited Company Claim Working Tax Credits?
By
HuutiMoney
If you are wondering whether a director of their own limited company can claim Working Tax Credits or not, you will find detailed guidance in the following blog post. In addition to answering your question, we will also explore the potential claim you can make for Working Tax Credits as a limited company director, discuss whether you should file for a single or a joint claim and review the eligibility criteria for Working Tax Credits based on your circumstances.
Can A Director Of Their Own Limited Company Claim Working Tax Credits?
Yes, a director of their own limited company or a self-employed director of a limited company can claim Workin Tax Credits if they fulfil the eligibility criteria listed below:
- be on a low income (including dividends)
- working for at least 16 hours each week
- should have an employment contract with the company
- able to provide evidence of income and NI contributions
Being on a low income in the case of a limited company director means that your annual income should be less than £6,420. In fact, a number of people apply for protective claims before they are eligible for Working Tax Credits.
In this case, their financial information is readily available to HMRC. Therefore, when their annual income drops below the £6,420 threshold, they can qualify for Working Tax Credits automatically.
It is important to note that the amount of tax credits you receive is means-tested, meaning that it will be reduced as your income increases.
When you apply for Working Tax Credits as a limited company director, you will be required to furnish details of the following information in support of your claim:
- your income
- your partner’s income
- your working hours
- benefits that you may be claiming
- benefits that you have stopped claiming
In addition to this, non-UK citizens will also have to declare the details of their immigration status to confirm that they are not “subject to immigration control”.
However, from 6 April 2022, Working Tax Credits have been replaced by Universal Credit for among other legacy benefits. Therefore anyone applying for a new claim will have to apply for Universal Credit instead. You can do this by calling the Universal Credit helpline at 0800 328 5644, between Monday and Friday, from 8 am to 6 pm.
The payments one receives under the Universal Credit system depend on your income, savings, and circumstances such as whether you have disabilities or caring responsibilities.
How Much Can You Claim In Working Tax Credits If You Are A Limited Company Director?
The basic amount that you can claim for your Working Tax Credits payments as a limited company is £2,280. Then there are top-ups added to this amount based on the following factors:
- your income
- your expenses
- your circumstances
Based on these factors, you can have elements added to your basic claim. These are classified as follows:
- you can claim up to £2,340 a year if you are a couple applying together
- you can claim up to £2,340 a year if you are a single parent
- you can claim up to £950 a year if you you work at least 30 hours a week
- you can claim up to £3,685 a year if you have a disability
- you can claim up to £1,595 a year if you have a severe disability (this amount is usually on top of the disability payment)
- you can claim up to £122.50 (for 1 child) or £210 (for 2 or more children) a week if you pay for approved in-person childcare
To get an accurate estimate of the amount you may be eligible for you can use the official Tax Credits Calculator provided by the UK government.
Which Expenses Are Deductible From Your Income As A Limited Company Director?
If you are claiming Working Tax Credits, there are several deductions you may be able to make from your income. These include the following:
- Work-related expenses such as costs for travel or equipment.
- Pension contributions, if you contribute to a pension.
- Gift Aid donations, if you make a donation to a charity through the Gift Aid scheme.
- Trading losses, if you are self-employed and incur losses.
- Property losses, if you have rental income and incur losses.
Should You Apply For A Single Or Joint Working Tax Credits Claim If You Are A Company Director?
Whether or not you should apply for a single or joint Working Tax Credits claim depends on your relationship status. To be eligible for Tax Credits as a single person, you must meet one of the following criteria:
- aged 16 or over and working at least 16 hours a week
- aged 60 or over and working at least 16 hours a week
- aged 25 or over and working at least 30 hours a week
On the other hand, if you are in a marriage, civil partnership or have a live-in partner, your joint income will be taken into account for your Working Tax Credits claim. In this case, to be eligible for Working Tax Credits as a couple with responsibility for a child or qualifying young person, you must meet one of the following criteria:
- One of you is aged 16 or over and works at least 16 hours a week and qualifies for the disability element of the Working Tax Credit (WTC).
- One of you is aged at least 16 and both of you work at least 16 hours a week, for a total of at least 24 hours a week.
- One of you is aged at least 16 and the other partner is incapacitated, in prison, in hospital or entitled to Carer’s Allowance.
- One of you is aged 60 or over and works at least 16 hours a week.
What Affects Your Working Tax Credits Payments As A Limited Company Director?
The key factors that affect your Tax Credits payments are primarily your income and circumstances. Listed below are some real-life situations that can affect your eligibility to claim Working Tax Credits or the amount you claim:
- a change in your relationship status such as moving in with a new partner, getting married or forming a civil partnership, separation or divorce
- death of a child or partner
- a change in your working hours (reduced to less than 30 hours a week)
- you start working for less than 16 hours while claiming childcare costs
- you move out of the UK for 8 weeks or more
- you leave the UK permanently (this includes losing the right to reside in the UK)
- you (as part of a union) go on strike for more than 10 consecutive days
Conclusion:
The above discussion helps to conclude that a director of their own limited company can claim Working Tax Credits; provided they are on a low income, are working for at least 16 hours each week, and can provide evidence of an employment contract, income and NI contributions.
References:
Tax Credits – How can they help limited companies | Crunch