benefits and self employment

biagrin

i have a number of questions which i really need answering. Ive already asked the relevent people but nobody wants to give me straight forward answers.

in a couple of weeks i am going self employed as a computer repair technician. my business will be registered as a sole trader and not a company.

I live with my partner and one child aged 5 who is in school. we are not married. My partner doesnt work. We are currently both receiving the following benefits:

income support
housing benefit
DLA
council tax benefit
child benefit
child tax credits

Now to earn what we get now in benefits i would have to earn £30,000 a year (once you add on taxes that need to be paid). Obviously it is unlikely that i will earn that much in the first year so i need to try and maximise how much money me and my family can get.

Any advice is appreciated.

my main questions are:

can i go self employed and only take an £80 a week wage? (by doing this it would put us on a low income and allow us to carry on getting some benefits)

and

can my partner still claim income support if i am working over 16 hours?

Thanks in advance

UnderPressure

Hello

Well done in the new business it is an exciting time starting something new especially working for yourself.

OK I cannot hep with your partner and income support as I have no clue on this at all, I can help with your self employment though, I helped a friend of mine a few months ago in a similar position.

The first thing you will need to do is find out about what your partner will be able to claim (hopefully someone else will be along soon to help with this) when you know what their income will be you then need to speak to tax credits, as long as you are planning on working more than 16 hours a week (although that is set to change to 24 for couples in 2012 I think but forget about that for now) you can claim working tax credit as well as child tax credit, because you have been claiming benefits the tax credit people will probably ask you for an estimate of what you think you are going to earn over the next 12 months, if you are expecting you business to start slowly and are only expecting to earn 50-80 quid a week then tell them so, dont over estimate as this will affect the amount you get, also dont under estimate as you will end up with an overpayment that will need to be paid back.

After you start your business if you find you are earning more than you estimated you would be better to call them back and explain this to them, the last thing you want is a huge overpayment it will all need paying back, similarly if you are earning less than you anticipated again call them and let them know, the thing to remember with tax credits is whenever you have any change of circumstances no matter how small call and let them know.

Similarly with housing benefit and council tax benefit you need to inform them you are to become self employed, you may have to re-claim or they may be able to adjust your existing claim as a change of circumstances, if all is the same as it was a few months ago they will ask you to estimate how much you are going to earn over the next 3 months, then at the end of the 3 months they will send you a form to fill in where you have to tell them about all of your self employed income and expenditure, same applies to this as tax credit try and be as accurate as possible so you dont find yourself in a position where you have been over paid.

If I was you I would do what my friend did the money you make from your first paid job go and get yourself an accountant, they will advise you on what you need to do in order to produce accurate accounts, they will tell you what to record, what receipts to keep etc etc, most of them will also then fill in any forms for housing benefit for you, it will cost you however your accountant fees are all deductable from your profit so it works itself out in the end, they will also produce your self assesment tax return for you as well you will have the peace of mind that all the paperwork has been completed properly leaving you free to concentrate on your new business.

DLA not too sure about again, if it is you who is claiming then logic would say you will lose it, if it is someone else in your family then I cannot see any reason why it should be lost. OK so now we need some answers on income support and your all set

One thing to note though, I have seen a number of threads recently where it seems to be taking an extraordinary amount of time for the Inland Revenue to process tax credit changes and applications so it may be worth getting "all your duck in a row" before you make any changes to this, and if possible try and get prepared to be without it for a few weeks, you will get any backdated money but if you can save a little beforehand it should make the wait a little less painless...................

HTH and the very best of luck with it all

Indie_Kid

UnderPressure wrote: »

DLA not too sure about again, if it is you who is claiming then logic would say you will lose it, if it is someone else in your family then I cannot see any reason why it should be lost. OK so now we need some answers on income support and your all set

DLA isn't income based. You'll only lose it, if your job contradicts the reason why you claim.

UnderPressure

sh1305 wrote: »

DLA isn't income based. You'll only lose it, if your job contradicts the reason why you claim.

There we go that is the DLA sorted out just the income support now

flashnazia

Any good reason why your partner can't work?

KiKi

biagrin wrote: »

can i go self employed and only take an £80 a week wage? (by doing this it would put us on a low income and allow us to carry on getting some benefits)

Hi, I know nothing about benefits, so can't help with that!

However, as a sole trader you can't 'take a wage'. Everything you earn is yours.

I think what happens is (although I'm no expert, so I'm very happy to be corrected!) that when circumstances change benefits are calculated on the best possible information, which is usually what you've earned up to that point, and what you anticipate earning.

When you complete your tax return (or if you phone relevant benefits agencies because things have changed significantly before then) they calculate what you've earned and what you're entitled to, and will adjust accordingly, or request benefits money back if you earned much more than expected and have therefore been paid benefits you weren't entitled to. I looked into this for Working Tax Credit for me, as I don't earn much as a sole trader.

But you cannot 'take a wage' on a weekly basis. If you earn £150 in a week, then it's yours. You can't take £80 and keep £70 elsewhere, it's already considered earnings. It's an average of your annual earnings, which is why benefits situations are quite complex when you're self employed; you cannot manipulate your wage in that way.

I hope that helps.
KiKi

biagrin

For all those who took the time to post - a big thank you to you.

Most of what has been said i suspected all along.

In the early days of being self employed i will expect my wage to be low anyway but while it increases there is always those expenses which will just happen to keep my wage low until i see a time where i can drop the shackles of benefits

I know i seem like a bit of a scam artist but what i am trying to do is (hopefully cleverly) lay the foundations to getting out the benefits trap. The last thing i want to do is go to work to earn less than what we get now for doing nothing.

i suppose the rule here is to play it by ear and adjust accordingly.

Hammyman

biagrin wrote: »

can i go self employed and only take an £80 a week wage? (by doing this it would put us on a low income and allow us to carry on getting some benefits)

a

Not really. If you're a sole trader all profit is counted as income no matter what you pay yourself. If you're a limited company, you can pay yourself less but then you would have a dividend.

You would get DLA regardless of income. You would still get child tax credit and would most likely qualify for working tax credit in your first year as well.

Your partner can't claim IS.

missbunbury

Hammyman wrote: »

Not really. If you're a sole trader all profit is counted as income no matter what you pay yourself. If you're a limited company, you can pay yourself less but then you would have a dividend.

Dividends are taxed at 10% rather than 20% so saves you money on your tax bill, not sure of the costs of Ltd company set-up though and you would have to deduct your tax and NI at source which is a hassle.

Assuming you are planning to do things above board (i.e you are actually going to declare all your income) there are things you can do to reduce your net profit as a sole trader for tax purposes (and therefore for tax credits purposes) - you can put down use of home as office against your profit, for example.

If I were you, I would try to get yourself a decent accountant/adviser/mentor who will be able to help you keep on top of things in your first year, it's very easy as a newly self-employed person to get into the habit of just spending whatever money is floating around, then at the end of the year when you sit down to do your books you find you owe tax and NI far above what you would have expected. I'd get a separate bank account for the business too if you can, so that you can easily distinguish between money that is needed for business costs and money that is available for you to take as profit. And keep receipts for EVERYTHING you buy for the business so that when it comes to tax return time you don't end up in a mess.

KiKi

missbunbury wrote: »

Dividends are taxed at 10% rather than 20% so saves you money on your tax bill, not sure of the costs of Ltd company set-up though and you would have to deduct your tax and NI at source which is a hassle.

But then you're also paying Corporation tax, so if your earnings are low setting up as a ltd company isn't worth it - unless the people you work for will only use ltd companies as contractors.

Assuming you are planning to do things above board (i.e you are actually going to declare all your income) there are things you can do to reduce your net profit as a sole trader for tax purposes (and therefore for tax credits purposes) - you can put down use of home as office against your profit, for example.

Good advice - claim all your expenses. Unfortunately this won't come to light at first, and will take time to establish - perhaps even until the end of the financial year, so from a benefits point of view he just won't know what he's entitled to until this has been assessed!

KiKi

Hammyman

KiKi wrote: »

Good advice - claim all your expenses. Unfortunately this won't come to light at first, and will take time to establish - perhaps even until the end of the financial year, so from a benefits point of view he just won't know what he's entitled to until this has been assessed!

KiKi

To the OP - in respect to the above quoted bit, phone up tax credits and tell them you're self employed and how many hours you're working (this includes everything to do with the business - even going to the post box!). You will then be asked what your income is. Give them the estimated profit you've come up with in your business plan (you did do one didn't you?). Doesn't matter if its a loss or very little as many businesses are expected to make a loss in the first year due to setting up expenses. Later on once you're going steady, if your profit looks like being a fair bit more or less than the estimate you gave them, ring them up and give them an amended estimate. It'll trigger a review which will either decrease or increase your payments accordingly and not leave you with a large reduction to recover overpayment next year or leave you skint this year when you needn't be.