Earn more money, pay less tax | Money matters | Touchstone Education
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Earn more money, pay less tax | Money matters | Touchstone Education

– Hello, welcome. Today, I’m going to show
you how to earn more money and pay less tax, sound good? (upbeat music) You’re all probably
sat out there thinking, ’cause everybody does think this, the more money I earn, the
more tax I’m going to pay. And I understand exactly
why you would think that because that’s how
you’re trained to think. You are trained to believe
that once you earn more money, then you can earn, as a
20% tax payer, you pay 40%. And then when you go over
150,000, whoa, whoopee! Now you’re going to pay 45%
and you’re going to lose all your allowances. And you’re going to carry on
paying national insurance, you’re going to be paying
53% tax at that point. You’re actually now not
working for yourself or anybody else, you’re
working for the government because you’re giving 53%
of your money to them, and I don’t want you to have to do that. It’s your legal obligation to
pay the correct amount of tax and set the appropriate
measures to optimize that tax. I’m not talking about tax
avoidance or tax evasion, I’m talking about managing it. If you don’t have the tools, you can’t. So this isn’t a complete
everything you need to know about tax, this is specifically
what you need to know to make sure you’re not
paying too much tax. So, I’m going to take a situation
where we’ve got a person and they’ve got a job, but it could be a job or it
might be that they’ve got, they’re self-employed but
they’re paying some sort of national insurance and
tax based on an income. But for the purpose of this, I’m just going to assume it’s PAYE, but it could be if they’ve got
their own business as well. And I’m going to say this
person, we’re all different, aren’t we? I’m going to say they’ve
got 60,000 pounds PAYE, pay as you earn. So that’s going to put them into
the higher rate tax bracket, they’re going to be paying 40% income tax, they’re going to be
paying national insurance, they’ve got various taxes. So what they take home,
this is a nice simple number to work with in the sense
that it’s five grand a month. And it’s more than twice
the national average, so if you’re sitting out
there listening to this and you are earning
60,000 pounds, well done! Because you’re actually earning
double, more than double, the national average. But you will know if you get
paid 5,000 pound a month, by the time it actually
gets into your bank account, it’s an awful lot less. Now, I can’t tell you
precisely on this video what it’s going to be because
you’re all going to have an individual tax code. Now that tax code is the amount of money that you’re allowed to
earn before you pay tax, and it’s got various factors in there, so you will have an individual tax code, and it’ll just say it. It’ll like end in a K or something and it’ll be on your payslip. So you’ll be able to see
all of these numbers. So the first practical
exercise that I want you to do is I want you to go and
get out your payslip and make sure you understand it. ‘Cause it’ll have all the entries on it and if you’re getting given
an amount of money every month but you don’t know what it means, and if you’re just focused
on your gross and your net, and if you just know that
you’re on 60,000 pounds a year and you take home 3,500 or something, or 3,200 or whatever it is, I know you’ll know those
numbers ’cause that’s what hits your bank account every month. But I need you to
understand it more than that ’cause I want you to split
out the various kinds of taxes you’re paying, and I want you to understand
why you’re paying them. Because income tax is
something that can be managed. National insurance, which I just realized I haven’t finished there, I don’t actually regard
national insurance as a tax. And I would want to go out of my way to make sure I did pay
my national insurance. More of that later, but in order to get your old-age pension, you actually have had to have
paid your national insurance for a minimum number of years, and the more years you pay it
for, the more pension you get. So national insurance, for
me, isn’t really a tax. You’re paying money now so
that you can have a pension, a state pension, in old age. So this is all happening over here, and you’ve got it on your payslip, so your first job, get out your payslip and make sure you understand
the various types of tax. Now, what we’re going to do
next is we’re going to go and start to buy some houses, we are going to have a property business, and this is my first and strongest advice, make sure you understand
the tax implications of whatever you’re doing with property. ‘Cause properties can, very
quickly, start giving you significant passive incomes, and if you don’t know how to
manage the tax implications of that, you’re going to end
up paying far too much tax. And I’m sure you’d agree with this, it’s not about what you
make, what your income is, it’s about what you keep. Like they say in golf, for instance, you drive for show, but you
actually putt for dough. So it’s not about the big
flashy, top line number, oh, I’m on 300,000 pounds a year, that’s not the correct way to measure it. The way to measure it
is well, how much money goes in your bank every
month after you’ve paid for all your taxes and
insurances and everything else? So for the sake of this
example, I am going to say that we’ve got a property business, and I am going to say
that we’ve got a number… I’m going to pretend that
you’ve been doing this for, I don’t know, four or five years, and so you’re maybe four years
into your property business, and each year, you’ve done the courses, you’ve had the education,
you’ve learned how to do it, and each year you’ve bought
two houses, or flats, or something, or whatever. And then, as you got more advanced and you understand there’s more options. See, by the end of four years,
you’ve got eight buy-to-lets, but you’ve also done a
couple of commercial deals, so I’m going to say they’re shops, but you’ve only been doing
that for two of the four years. So you’ve got eight buy-to-lets
and you’ve got four shops. And I’m trying to be very realistic here because if you’ve been a
property investor for four years, is it possible that you end
up with eight buy-to-lets and four shops, you bet you it is. So what kind of money are
they going to be producing? How should you own them and
how should you manage the tax? So for buy-to-lets, I want
you to seriously consider putting them into a limited company. So in your limited company, you’ve got your eight buy-to-lets. Hope you’re following all of this. But shops are commercial. These are residential, so if
hear people talking about resi, they’re short-handing it for residential. So what they mean by residential, they mean where somebody lives. So a flat or house or a
HMO, something like that. But then separately, I actually
want you to have a pension that owns the four shops. Now, for the sake of this argument, I actually don’t mind whether this pension is a SIPP or a SSAS, and
don’t get yourself all het up about that, these are
just two different kinds of private pension and I’m not
going to talk about that today. Just going to keep it nice and easy. But you’ve bought four shops,
you’ve put them in there. Now, in terms of money, what
are the buy-to-lets doing? Well, the buy-to-lets I’m
going to say are producing an average of 250 pound a month each. So you’ve got 250 times eight,
which is 2,000 pound a month. There’s obviously 12 months in a year, so your buy-to-lets
are producing an income of 24,000 pounds a year. That’s profit after all costs. So you’ve taken in some rent,
you’ve paid the mortgage, you’ve paid a letting agent, you’ve done whatever you need to do, and after everything, it’s
realistic to expect a buy-to-let to give you about 250 quid a month. But you’ve got eight of them. And you might be off
on some other strategy, like you might doing
service accommodation, you might be doing tenant buyers, you might be doing rent-to-own, but I just want to keep
it dead simple for today. You’ve got 24,000 pounds a year profit from that limited company. In addition, you’ve got
four shops over here, they’re just nice little shops. What they’re doing is they’re
producing 1,000 pound a month, each, but you’ve got four of them, and that’s giving you
4,000 pounds a month, or 48,000 pounds per annum. So, suddenly, you’ve gone from
just having 60,000 pounds, you’ve got an extra 24 grand of profit from your buy-to-let business, and you’ve got 48,000 pound
a year in your pension. Does that sound like a nice
place to be four years from now? And do you think you need
to know how to manage those income dreams so you
don’t pay too much tax? And would you be somewhat shocked to learn that if you manage this properly, despite the fact that you’ve actually got more money coming in, you can actually pay less tax over here? ‘Cause most people think they’re
going to do some properties on the side or whatever, they never actually
think, in my experience, well, how can I use all of this to reduce my tax bill in my day job? They never think that. And it’s very wise, by the
way, in the early years of being a property
investor to have a day job because it makes getting mortgages for all this lot a lot easier, because you’ve got 60,000
pounds, happy days! Okay, so how do we manage this? First, and this is going
to sound counter intuitive, but I want to just take
the top line numbers and share the principles, and I’m not going to go
to the fifth decimal place ’cause I just want to keep it easy, I want to share the principles. What I want you to do is
take some of your PAYE money and actually pay it into your pension to buy all those shops with. And let me talk you through that. You would set up a SIPP or a SSAS, I help people do it all
the time, it’s very easy, and it doesn’t matter if you haven’t got any pension right now. ‘Cause three quarters
of this country of ours doesn’t have a pension, and
I find that quite scary. Three out of four of us
don’t know how much we’re going to live on in retirement, can’t tell anyone that asks
them what their plan is for a pension, and it’s
just all too difficult, all too hard, and we don’t do anything. But imagine how nice it
would be to have four shops giving you a thousand pound a month each, 48,000 pound a year pension. Is that achievable three,
four, five years from now? Yes. Might it take you five
or ten years? It might. But one thing’s for sure,
if you don’t start now, you’re never going to have any. Very simple process to set it up, there’s a number of providers
that’ll do it for free, and it can be done within a
matter of six to eight weeks. That’s how far away you are
from having a pension set up. Now, the maximum that
you’re allowed to put into a pension every year, and I want you to put in
as much as you can afford, but I’ll tell you the maximum. The maximum is 40K per
annum, 40,000 pound a year. But in terms of the impact that would have on your take-home salary, they’re giving you the tax back. So every 10,000 pounds you put in there is only going to cost you six,
if you’re a 40% tax payer. So, you’re not quite getting
double your money, but nearly, and if you’re a 45% tax payer, you are very close to
getting double your money. So, for every 60 pence,
as a high-rate tax payer, that you put over here, you’re
going to get 40 pence tax back. That’s powerful. And you’re building for your future, and essentially I want
you to ask this question, instead of having six
pounds of income now, or 6,000 or 60,000, or whatever, now, would I rather have 10 pounds, or 100,000 pounds, when I retire? And I’m now, I’m a pensioner
by the way, I’m 55, so I can actually draw my
SIPP or my SSAS if I want to. ‘Cause most people think they can’t retire until they’re 67, 68, whatever it is, and even then they can’t afford to. Well, I can afford to retire
now ’cause I’ve been doing this for 15 years. But this is realistically
achievable over that time frame. So, by putting 40,000
pounds a year over here, you’re actually going to
be getting, effectively, 16,000 pounds of that is tax back. So it’s not going to cost your
40, it’s going to cost you 24. And there’s a reason why
I’ve done it this way, this is not an accident
that I’ve used these numbers as examples. So the next cost to you if
you put 40 from there, there, is not 40, it’s 24. Which is remarkably similar
to that number, isn’t it? In fact, it’s the same. So what you’re doing here is
you’re giving up PAYE income, which is the most tax
inefficient way to earn it, you’re putting it into
a pension where your 24 suddenly becomes 40, and can you go and buy a
shop or something for 40K? Well, I don’t want to go
too far into it today, but you don’t need to
because whatever you’ve got in your SIPP or your SSAS, not you, but the SIPP or the
SSAS can borrow an extra 50%. So the 40K here, it can
take a mortgage, not you. So your 40K becomes 60. So can you now go and buy, because you put 40,000
pound a year in there, I said four shops, that
wasn’t an accident either ’cause you done it for four years, yeah? So you’ve put 40K in, but then each year, you’re adding a 20K SIPP
or SSAS mortgage to it, which is how I’m getting
to my 60,000 pounds. Can you buy a shop for 60,000 pounds, or an office, or a factory,
or a warehouse, or a whatever? The answer is yes, you can. These numbers work, how do I know? ‘Cause I’ve got loads of them. So you can use your tax-free
income to put into a pension that can then go and start
earning money off of shops, or offices, or industrial
property, or warehouses, or garages, or I don’t
know, whatever you want. That then, so this is,
you’ve got four of them, and that’s how much they
give you every month. And this part of it is completely
incredible, blows my mind, and I’m so pleased to be
able to share this with you. It’s insane, still, even now, 15 years after I started doing it, that 48,000 pound a year, 0% tax. That’s pretty tax efficient. And I’m now at the stage where I’ve got, well, I’ve got more than that, but it doesn’t matter what I’ve got, I’ve got a full-up pension fund. And because I’ve been doing
it for enough years, 15, very quickly your annual income, I’ve said you’re four
years in in this example, your annual income from the shops, well, you could even stop
putting the money in now, even that income on its
own, borrow 50% more, that’s enough to buy a shop with. So you’ve now kitted out a pension scheme with enough residual income
that you can just reinvest it every year and get another one. So, it’s 0% tax plus one free shop. So you’re adding one free shop every year, because you put some money in, you’ve got a big tax
credit ’cause you’re making pension contributions, that’s all tax free ’cause
it’s inside a pension, and then you’ve now got
it to a critical mass where it just, it’s like a
snowball going down the hill, you’re getting a free shop every year, which means that goes up every year. And you’re all stood out
there thinking this is insane, what’s the catch? That’s the catch right there,
you didn’t know about it. This is the biggest kept
secret, this is the… Pensions, if you said to me
Paul, in this country of ours, what is the biggest scam? I would say pensions, because if you put money
into a pension scheme and you don’t know all this stuff ’cause you haven’t educated yourself, ’cause they don’t teach
you at school, do they? Come on, I can see you
all through the lens, show me your hand if you did a class on commercial property
investing, using pensions, in school. No hands, didn’t think so. The most you can put
in your pension scheme is just over a million. So it’s currently a million and 40,000. Now let’s say you’ve
put a million and 40,000 into your pension scheme, and you retire, ’cause this’ll be ridiculous, that’s like 10 times the national average. But I want to show you
how massive a scam it is, even if you done that. ‘Cause people say to me oh,
define benefit pensions schemes, final salary pensions schemes, they’re the best you can
have, they’re not, in my view. Because you take a million quid, put it into something called an annuity, that’s what the pension
fund will buy for you when you retire, so effectively, you give them the money, put it into an annuity, and
the annuity will pay you about 3%. So that means your million pounds, you’re going to get a pension
of 30,000 pounds a year. That’s lunatic! You’ve got to live 33 years
to get your money back. ‘Cause when you die, that’s gone. You’ve lost it, nothing for the kids. So if you retire at 67, you’ve
got to live to 100 years old to get your own money back. Now if that’s not a scam,
please tell me what is. But that’s the institutions,
that’s the system, that’s what we’re all
told to do, it’s insane! So, you’re thinking well,
fine Paul, that’s fantastic, but I can’t afford to take 40
grand of my 60 grand salary and stick it into my pension
to buy my shops with, I’ll be skint, the kids will be hungry, no holidays in Marbaiya,
I’ll have to sell the car, or whatever, some version of that. Well, why do you think I’ve
got you invested in buy-to-lets in the first place? So it’s costing you a net 24 grand, you’re making 24 grand over here, extra. So how much is this actually costing you? Nothing if you know how to structure and put it all together in
terms of pieces of the jigsaw. But now you’re saying well, Paul, how do I get my 24 grand
profit out of there? I’m going to have to pay tax on it. Yes, you are. So what kind of taxes are
you going to have to pay on that 24 grand? Well, if you made a profit, I mean, there’s a whole level
of other sophistication, but this is just the really basic stuff. This is the really basic stuff, because can you reduce
that profit, for instance, by charging your car mileage against it? Yes. How much are you allowed
to charge, 45 pence a mile. How many miles a year, 10,000,
that’s four and a half grand. So you could reduce your taxable profit by claiming 4,500 pounds for motoring. And if, as a property
investor, you’re driving about looking at properties and
considering investment areas, is that a legitimate business
mileage, of course it is. Now, please tell me where you
can go in the United Kingdom without seeing a house,
or a shop, or an office of some kind, ever? So could you be doing
research, legitimately, on different areas? And this all needs to be
legitimate, of course. What else could you do
to reduce the profit? So, I’ve talked about car
mileage, let’s write that down. 45 pence per mile, maximum
10,000 miles a year, and that’s per person. So that’s you and, I
don’t know, your partner, your misses, your fiance, whoever, boyfriend, girlfriend, don’t care, as long as they’re part of the business. Board meetings. For years and years and years
I was a senior executive in a big company and we
used to have board meetings. Not every month. 80% of the managers, or
the directors, sorry, that were part of my board
would live in the UK. The only place we never had
a board meeting, the UK. We would go to Singapore
or New York, or wherever. Is that a legitimate
business expense? Yes. Could you extend and
have a few days holiday while you were there, after
your board meeting? Yes. Could you be thinking about
doing service accommodation in Marbaiya, yes you could. So is there a legitimate
reason why you might have a board meeting over
there, and tag on a holiday? So I don’t want to go into that today, there’s loads of ways
you could reduce that, but let’s say you’re
making a profit of 24 grand after you’ve used legitimate strategies to reduce the profit. Well, I don’t want you to pay
that to yourself as salary because you’ve already
got a salary over here, you’ll kick straight into
40% tax, no, don’t do that. And the company will have to pay employer’s national insurance. You will have to pay
employee’s national insurance, you’re just going to get
taxed to kingdom come. You’re going to lose half of your money. So that 24 grand, I specifically want you to pay it to yourself as a dividend. And this is as complicated
as I’m going to get in this video today. But I want you to understand,
you have to understand, the essential elements of dividend. So a dividend can only
be paid from profit. So you’d actually have to
declare a profit in the company of 24 grand. And that means that you’re
going to have to pay corporation tax, so not income tax, yeah, I know, by now your head’s spinning. Another tax, oh, what’s all this? Corporation tax. Well, corporation tax, this year, is 18%, but next year it’s dropping to 17%. So let’s say, for this
example, 24,000 profit, going to pay 18, next
year 17, so it will be 17 by the time you actually do this, ’cause this is in four
years time, isn’t it? So what’s 17% of 24? Well, 20% of 24 would be 4,800, so 17% is roughly 4,400. I haven’t got a calculator,
I’m just doing it in my head, but it’s four and a half grand. Now you can pay dividend. So from your 24, you’ve
got roughly 20 left that you can pay yourself as dividend, so this money now goes
back that way, to you, ’cause you’ve given up some
of that to go in there, yeah? You got that. That’s building a pension for the future. You’ve supplemented it,
you’ve replace it there, and I’ve made the numbers the same. I can’t make them exactly the same ’cause I’ve got to take the tax out. So, you’ve got 24 profit,
pay your corporation tax, bar a few hundred pounds,
you’ve got 20K left. So now, back into your personal
bank account as a dividend, you’re going to pay 20,000 pounds. How much tax do you pay
on that, personally? Well, you are going to pay the
first 2,000 pounds of dividend equals nothing, it’s tax free. Now, I’m keeping it
simple, there’s one person in this example. But let’s say you’ve
got your wife in there and two of your adult children. This 2,000 pounds is per
shareholder, per year. So if there’s four of you, you could be pulling out
8,000 pounds tax free every single year. You can’t make this stuff up. Of that dividend, you
are going to pay 7.5%. So 7.5% on 18K. Well, 10% on 18K will be 1,800, 7.5 is three quarters of that, so you’re going to be
paying about 1,300 pounds, so you can give yourself
20,000 pounds of income and your tax is going to be at 7.5%, and again, in my head,
I might be 100 quid out, I think it’s about 1,300 pounds. So you’re total tax bill is
about four and a half there, one and a half there, it’s
going to be about six on 24. But if you just push that
through as a 40% tax payer, it’ll be more than double that. So your tax efficiently
using your PAYE money to build your pension
to buy shops and stuff, which you’re going to
save for your old age. You’re using your limited
company to replace the income that you’re putting into your
pension, so it’s almost free. So I got a question for you. Hopefully I haven’t, looking back on it, it looks a bit complicated now. But that’s the easy version. So my second action, my
second activity for you is I wanted you to go and
check out your payslip, and make sure you
understand all the numbers, that’s number one. Number two, I want you to
go and find out about SIPPs and SSAS’s ’cause you can’t
do this unless you know what a SIPP or SSAS is
and you get it set up. Number three, and
perhaps most importantly, I want you to ask yourself a
question, and the question, so your third and most important action, if you want to take an action from me, is why you haven’t done this already. And what, specifically, are
you going to do about it? But first, I want you to
understand why you haven’t done it. I know you can do it, I’ve done it, I train thousands of
people every year to do it. I’m going to give you the two
reasons that will stop you from doing this. I really hope you’ve
found this video useful. The two things, in my
experience, that you have to have in order to make this happen. Number one, knowledge. As a wise man once said,
“Information is not knowledge.” All of this stuff is in the public domain. All of it’s available on the internet. Well, if information is all you need, then surely to Christ
everybody would have done it. So information is not knowledge. So I need you to equip
yourself with knowledge. And if you did that, if
you were tax neutral here because you had some
buy-to-lets replacing the income that you were putting into your pension, but you built a million pound pension fund by the time you were 55. My pension fund yields
an average of 12.5%, which is more than 125,000 pounds a year. So my pension gives me more
than 10,000 pounds a month. And if you can gain a pension
of 10,000 pounds a month without it costing you anything, and instead of getting it destroyed by putting into an annuity, you’ve still got the
million and 40,000 pounds, and the income through the
shops that it’s throwing off is 125 grand a year,
it’s 10 grand a month. Think of what difference
that’s going to make, because when you die and you
will, I’m sorry, at some stage, what happens to that pension fund? Goes to your kids, it’s
not like an annuity. You keep it, your family keeps it, it goes wherever you want it to go. So the biggest question I want you to ask is why you haven’t done it. And I know what it’s going to
be, it’s going to be knowledge, so go and get the knowledge,
go and invest in yourself to get the knowledge
to be able to do this. Second thing you need to
do is take some action. So those are your three tasks
if you want to take them on. You’ve been wonderful, I’ve been Paul, hope you enjoyed it, see you soon. If you’ve like it,
please literally like it, subscribe to the channel, get
your friends to do the same. You’ve been wonderful, I’ve been Paul, see you next time, bye-bye.

About James Carlton

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14 thoughts on “Earn more money, pay less tax | Money matters | Touchstone Education

  1. Good vid. Enjoyed it 😎 but wouldn’t the LTD companies mid range dividend rate be 32.5% ? After the initial £2k tax free each I mean as your salary would already be taking you over the basic rate.

  2. Paul I never tire of listening to your money plans and savings. Thanks well done, hope to get to free meeting when area and dates align

  3. Cheers Paul probably the best value youtube video I have watched. So the SSAS can get a loan (mortgage) of 50% of it's total value. But what if it's value (mortgage) is not enough too cover the full cost of purchase. Can you get another mortgage too buy or does the rest have to be other loans or cash and does this need to be declared when purchasing it?

  4. Great video Paul, always so informative.You are so right that knowledge is everything, I had no idea this existed. So I can set up a SSAS and buy a commercial building under my SSAS instead of under a LTD or PPL? My son and I are only just starting in property investing so need to set up all the right trading entities. Thank you always enjoy watching your vids.

  5. This is a fascinating video, thank you. I have one question: Does the £40k pension contribution from PAYE salary into the SIPP / SSAS really attract the full £16k (40%) tax refund, or would it only attract say £4k (40%) tax refund on the first £10k contributed (taking the salary level from £60k down to £50k) then a further £6k (20%) tax refund on the remaining £30k contributed (taking the salary level from £50k down to £20k), because when going below £50k you become a basic rate taxpayer? If so, that would be a total tax refund of £10k on the £40k contributed, making the net cost of the contribution £30k, rather than £24k. I appreciate that some of the figures are deliberately simplified for illustration and I may well be mistaken anyway, but just to help me better understand. Many thanks!

  6. Great video – wish I had seen this years ago .Can you recommend where I could find more information on SSAS and how to set one up?
    I am looking at transferring my company pension into one and have a number of questions
    If I transfer my existing pension which is greater than £40k from into a SSAS can I still pay in from my salary up to the £40 k limit as well this year?
    If I retire from work (I'm 55) how would I remove money from this structure given my understanding that once you start drawing a pension from a SSAS you then become restricted to putting £4k a year into it and at what point would it become possible to start drawing pension without any penalty?
    Hope what I am asking makes sense and thanks for any help you offer

  7. Good video Paul. I am doing exactly what you described – SASS set up, 1 pension transfer out of 5 has been completed. When all transfers are complete I will start to build a BTL portfolio and a commercial property portfolio in the pension. I am glad that my plan has been validated by someone with your experience 🙂

  8. Great information much of which I have been using for years (off course you're going to need the best part of £200 K in deposits, stamp duty costs, solicitors etc) to buy 8 houses, some of that is dead money whereas you could use all that £200 K to pay more into SIPPS over the coming years and get instant return (via tax rebate) on your investment rather than instant loss when buying property in a limited company. However something I have done for many years on top of this, and its perfectly legal for those with kids especially is you can use your gross pension contributions to reduce your income not just for income tax reasons, but for child and working tax credit reasons. So people who (earn more than £30 K pa) would ordinarily not be entitled to child and working tax credits can suddenly claim them. Example income from a job £46 K pa , then pension contribution of £40 K (actual cost £32 K) with 2 kids you would get an extra £11 K net from government for working tax credits per annum, I know because I've done it for years. You can do the numbers at entitledto.co.uk. One of the best kept secrets around, and perfectly legal, but rules are changing due to the introduction of Universal Credit.

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