self employed and housing benefit - advertising expenses

kathryn2010

hi,

i've been self employed for the last 9 months and just handed in my accounts. HB are asking me about 600 i spent on advertising costs. they want to know if it was to maintain current business levels or to expand my business. why does this matter and will the wrong answer mean it no longer counts as a legitimate expense?

help appreciated,

kathryn

Benefits_Bod

kathryn2010 wrote: »

...advertising costs. they want to know if it was to maintain current business levels or to expand my business.

It isn't really about giving the "wrong" answer as such. It is the facts that count, so the "right" answer is to tell it as it is. If you give information that is inaccurate or wrong, you run the risk of falling foul of having retrospective overpayments assessed and of potentially committing fraud related criminal offences.

So, to expenses. Under HB/CTB legislation, costs related to the expansion of a business are not an allowable expense - there is an express provision for this.

If the advertising costs are to both maintain AND increase business, there is nothing wrong with apportioning the costs (if you're able to do so). This means some of the costs may be allowable while some aren't. There is plenty of case law / legal authority to support such an approach.

Hope this helps.

Hammyman

There isn't a wrong answer. I doubt that it is right to disregard advertising due to it possibly being for business expansion. I can understand them disregarding costs like getting larger premises but advertising is something all businesses should be doing regularly. £600 does not buy you a lot of advertising.

kathryn2010

thanks... is there a place where i can read the information you've quoted? it'd be good if i knew what was allowable and what not when i'm giving info to hb, to save including things im not allowed and then having to enter into unnecessary dialogue with them clarifying stuff. cheers.

Benefits_Bod

kathryn2010 wrote: »

is there a place where i can read the information you've quoted?

*cough* Well, you did ask...(and will probably regret doing so ).

Expenses are covered within regulation 38 of the Housing Benefit Regulations 2006. The link should open a pdf version of the full HB regs for those not of state pension credit age. The provision for CTB is in identical terms.

Regulation 38 sits on page 74 of that pdf. Expansion of the business is covered in sub-paragraph (c) of paragraph (5). You should be aware that the "expansion" provision has been considered in the High Court and by a Social Security Commissioner. In both cases, the provision was applied pretty strongly.

The rule of thumb for expenses in the assessment of HB/CTB is that all REASONABLE expenses, incurred in the employment, are allowable EXCEPT those expressly barred.

With respect to Hammyman, his response on the issue of whether expansion is allowable is not what the law says.

Hope this helps.

{Edited to add}: The law for HB/CTB is not necessarily the same as for tax where expenses are concerned.

Hammyman

Businesses advertise. It has everything to do with standard business practice. £600 does not a marketing campaign make. £600 barely pays for a few hundred business cards, a small yellow pages ad and a similar one in a weekly local paper for a year. It certainly doesn't qualify as a business expanding advertising campaign and if they have to ask the question, it is further proof civil servants have absolutely no idea of the real world not that anyone outside of the public sector needed reminding.

Benefits_Bod

Hammyman wrote: »

.... £600 barely pays for a few hundred business cards, a small yellow pages ad .... It certainly doesn't qualify as a business expanding advertising campaign and if they have to ask the question, it is further proof civil servants have absolutely no idea of the real world not that anyone outside of the public sector needed reminding.

It's probably wise to stress from the outset I'm not agreeing or disagreeing in the context of morality, nor whether or not the law should be changed. I'm simply explaining the law as it stands and that is what counts when assessing benefit entitlement.

While there are undoubtedly some benefit administrators who do lose sight of the real world, my view is the council is not necessarily asking an unreasonable question. I have personally dealt with hundreds of claim involving self-employed earnings (both as a decision maker and as a professional advisor to claimants) and there have been occasions where at least a part of amounts similar to £600 has, without question, been in respect of seeking to expand the employment - the claimant has positively stated so in some cases. It all depends on the facts of each case, the size and nature of the business and the relevance of the expense. It's also worth noting the OP herself needed clarification of why it is important in her own case and was, apparently, not entirely clear about how the expense should be accounted.

In terms of techie legalities in support of a benefit decision making authority asking questions and seeking evidence, most administrators are not experts on self-employed earnings and training is hugely variable both in quality and quantity. In addition, the onus is on the claimant to show an expense is allowable and, as explained in my earlier post, legal authorities have applied the expansion legislation pretty strongly.

To demonstrate how strongly it is applied, the High Court considered a case where a s/e earner had 3 stables. A friendly neighbour offered a further 3 stables on loan. In time, the neighbour offered to sell the extra 3 stables and these were duly purchased by the s/e earner. In short, the Court found that the costs of purchasing the additional stables were not allowable expenses for benefit purposes as the purchase was an expansion of the business / self-employment - even though they had already been in use for some time.

In another case, involving an Appeal Tribunal, a taxi-driver replaced his vehicle with a larger vehicle to, he said, carry more passengers. The driver asked that the cost of the loan taken out to make the purchase should be an allowable expense. It was disallowed as the increased passenger capacity constituted an expansion.

In both the above cases, the councils' respective decisions were confirmed in legal jurisdictions above the decision making administrator. If the above decisions appear to be at odds with the real world, that is a result of the law; not the councils being unreasonable (they have just applied the law).

kathryn2010

cheers benefits bod.i looked at the link u gave... im a bit confused by part a) of the section u referred to.. is it saying that ANY capital expenditure cannot be included?! that doesnt seem to make sense. most of my business expenses are for tools and other capital expenditure, for example a bike to travel to different work venues where possible. also, is it possible to charge for petrol/mileage from your house to places of work?

thanks a lot

kathryn

Benefits_Bod

kathryn2010 wrote: »

...i'm a bit confused by part a) of the section u referred to.. is it saying that ANY capital expenditure cannot be included?! most of my business expenses are for tools and other capital expenditure, for example a bike to travel to different work venues where possible. also, is it possible to charge for petrol/mileage from your house to places of work?

Capital is a minefield in HB/CTB. The starting point is that capital expenditure is not an allowable expense. But, there are exceptions as follows:

1) allowable IF the capital is by way of repaying loan in respect of replacement equipment / machinery (must be for business purposes).

2) allowable IF the capital is by way of repaying loan in respect of a repair to an existing business asset - unless insurance covers it.

For the avoidance of doubt, interest payments are always allowable (so long as both reasonable and for business purposes).

The cost of a bicycle would be a capital expense. As for tools, I *think* there is a rule of thumb in accounting that anything over £50 is likely to be capital expenditure. But, this isn't expressly stated in benefits legislation.

Petrol / mileage / other travel costs are not allowable for "home to base" travel. In other words, commuting. HOWEVER, if it is from home to different client sites, the latter would not be a base. So, in my view, those expenses would be allowable.

If any of the expenses are split between private and business use, these can be apportioned - make it clear in the information given to the council. Although this appears to contradict the bare legislation (see para (4) of reg 38), there are legally binding decisions by Social Security Commissioners confirming such apportionment is entirely lawful.

Er, good luck .