self-employment and benefits

poiuyt

i always thought that if you were self-employed you couldnt get benefits or they would be restricted.

but watching dragons den the other day changed this.

a lady owned a furniture company but was still entitled to benefits.

the dragons were slightly confused about how she could do that.

she explained that she does not pay herself a wage. and any dividends she was entitled to for that year was paid as a directors loan to another company of hers.

but if she did pay herself a dividend? how would that work benefits wise? would she have to pay back benefits for the previous year or upon receiving the dividend (obviously depending on the amount) not be entitled for the following year.

if not. how are other people getting on, when starting up a business and coming from benefits?

i want to start-up as a sole trader and come off benefits, but obviously would be helpful to have benefits whilst the business is gaining momentum? how does it work in this case.. do you provide estimates of profit and loss?

any insight would be helpful.

thank you!

calleyw

I watched it and got confused as she did not explain it properly.

The conclusion I came to was that she had 4 children 8 and under so she would be entitled to tax credits both the child element and working if she was working over 16 hours a week and was not pulling a wage from the company.

So only assume that is what she was on about.

If you are on a low income and work more 30 hours a week with no children you can still claim working tax credits if over 25.

Yours

Caroline

System

Hi, this is something I am going to look into more on Friday when I see my lone parents adviser. Anyhow I get IS, CTC (currently suspended :mad:) and CB.
I declared myself SE at the start of aug on the understanding any income had to be declared. I have a very low income that I hope to build on and then come off benefits. The last time I spoke to an adviser (going by memory only so not accurate) he said that SE income could be assessed monthly/quarterly or whatever suits you. This income would then be deducted from your IS. I think there is a disregard too but I am not sure how much.
Sure someone will be along soon who can help more tho'. What business are you hoping to set up? Good luck anyhow!

Conor_3

You are spot on rachelja.

poiuyt

thanks for your reply caroline + rachel

ill be working more than 30 hours a week, 1 child under 8. so i assume i would be entitled to CTC, WTC at least.

but i am confused about the IS.

rachel.. did the adviser mention if you gave your profit and loss at the end of the first quarter, would your IS would be deducted accordingly for the future.
Or the past IS payments would be considered as an overpayment and it would be deducted from any future IS/have to be independently repaid?

with regards to the dragons den lady. if you had a business that turnover 150k with 10% profit.. somehow somewhere shouldnt some of this be treated as capital?

hypothetically.... if you had limited company with a turnover of £10million and a profit of £1 million.. should you really be entitled to benefits even if you do not draw yourself a wage (considering all the creative accounting that goes on). or is this another blatant loophole? something doesn't seem right.

my adviser told me previously that they dont get many people starting up businesses, so he couldnt tell me much.. hence me seeking a person here whos been through the process!

bexmark_2

You can claim for Housing and/or Council Tax Benefits. They are means tested. I currently deal with several self-employed claims, and the assessment is based on your total income.
For someone just starting up, I would generally ask for a projection or estimate of what you would expect to make over the first 6 to 12 weeks and base an initial assessment on that. I would review your circumstances after that time and base a new assessment, probably for the next 6 months, on that.
Unless you wildly and deliberately underestimate your earnings, then you should not have any overpayment at the first review.
I would also advise you to keep all receipts for expenses and have a simple income/expenses book to provide an easy way to calculate your income.

System

poiuyt wrote: »

thanks for your reply caroline + rachel

rachel.. did the adviser mention if you gave your profit and loss at the end of the first quarter, would your IS would be deducted accordingly for the future.
Or the past IS payments would be considered as an overpayment and it would be deducted from any future IS/have to be independently repaid?

I'm not sure on that one, I think it would be deducted from future IS but that is a guess.
The guy I spoke to on the IS helpline was extremely helpful and more happy to chat away giving various scenarios. He was on the phone for ages, must have been bored lol.

fidey

I've recently become self-employed and have 2 kids. I get both WTC and CTC as well as HB and CTB as I have no earnings as yet. The council deduct every penny extra I get over the basic Govnt allowance. In plain speak an extra £20 for not being on IS is deducted from both HB and CTB....so I am living on IS level still and expected to finance my new business out of that. You are allowed to EARN £20 from your self-employment each week, but WTC and CTC are not EARNED INCOME and are deductible. Where the hell that woman on Dragon's Den gets the £5000 leeway from is a mystery to me. I was mad and shouting at the telly when I watched that!!!!!!!!!!!!!!!!!!!!!!!!!!!!
Hope this not so great news helps!!!!!!!!!!!!!!!!!!!!

fidey

Forgot to mention...I have to submit accounts every 8-12 weeks until my first tax year is up even if you've earned nothing, you have to prove it!!. You're not allowed to include any set up costs either!!!!!!!!!!!!!!!?????????????????????????? My point is, they will come out of any profit you make in the first year...Council don't seem to see it that way tho!! It annoys me that they govnt go on about all the help available...but actually it's given in one hand and taken away in the other!!!!! Very frustrating!!!!!!!!!!!!!!!!!!!!

System

Well I am in a slightly different situation. I can't get WTC as can't work 16 hours (I am retraining as well as 2 kids under 5 and no childcare). Want to set up my own business though. So I get IS, CTC (in theory) and CTB. I called helpline again today and there is a £20 disregard on what I earn and then anything after that comes of the IS. Made a measly £40 in my first month but got to start somewhere lol :rotfl:
Thanks for posting info that you need to submit a/cs 8-12 weekly, didn't know that.

poiuyt

hmm.. i assume all the above scenarios are for sole-trader status...
and this lady on dragons den had a limited company status, therefore did not have to declare profits/loss.. only dividends or if she paid herself a wage.

i assume that lady was talking about 5000 income allowed before having to pay income tax...
i am not aware of any other allowance attached to that figure.

but i don't see why she brought that up, if she was not paying herself a wage.

so if i take the sole trader route..

i have to submit accounts quarterly and it will balance out FUTURE benefit payments?

the LTD company route..

would mean I have to declare my dividends if i pay myself any, at the end of my first trading year. Then that would be used to establish my entitlement for FUTURE benefit entitlements.

@bexmark..
what if you make less than you projected. would the underpayment be carried on to the next assessment period? do you deal with assessments for people owning a LTD company?

thanks