Becoming a company director and claiming benefits? Advice please??

JWmoney

Hello all,

I am currently, quite newly self employed. I earn about £250 per month profit and receive housing benefit. I am too young to receive WC credits and do not want to claim any other benefits anyway.

My concern is that I will often have a random client that will come full time for a month, that will bump the profit up about £400. The next month, a full-timer will be off for weeks, someone else will be sick and it will go down £800.

According to the council, if month A I earn £700 profit, I am not entitled to anything, even if month B I only earn £100 profit. They say I will just get my HB entitlement back for month B that I didnt earn enough. My entitlement doesn't get any higher if I earn £50 profit or £300 as I am under £25 and on a limited amount of benefit.

My concern is how they work this out as obviously the good months when I make more profit will be rolling capital to get me out of a sticky situation when I have a bad month. My quarterly rent is £3k, among other running costs and making more profit just means I can finally do a bit of advertising one month or work on my premises that I desperately need to do. I need to get some rolling capital behind the business, so that I can improve it in about 6 months time to advertise and employ a member of staff. I cannot employ someone without a few grand savings in the company as I have to ensure I can cover this persons wages for X months, if work goes dry again.

I am considering becoming Ltd to keep things simple with my wage. I can then pay myself a set £300 per month and build some capital up in the business, which is vital. I know this capital WILL eventually be spent on the business again, I will NOT take it as a lump sum or anything like that. When there is enough capital, I plan to increase my wage, assuming my monthly profits have risen and of course come off all housing benefit.

I am wondering if I am allowed to do this, or, as a director, will the rolling capital still be classed as my capital and therefore effect my benefits entitlement?

THANK YOU :-)

InsideInsurance

Your probably better off asking in the Benefits section rather than small business money saving

JWmoney

No one seemed to know much there either.

Im asking here because I am sure that there's a lot of small business owners that claim some kind of benefit and they may be aware of how the system works when you are a director of a Ltd company.

fred7777

JWmoney wrote: »

Hello all,

I am wondering if I am allowed to do this, or, as a director, will the rolling capital still be classed as my capital and therefore effect my benefits entitlement?

If you own a limited company then your money and the companies money are legally separate. The rolling capital will not be classed as your capital in the calculation of benefits.

However this also means you can't use the rolling capital for your own use unless you the company pay you the director at which point it will affect the benefits calculation.

Being a director isn't relevant, not all directors own their companies.

[Deleted User]

I think you should arrange a free meeting with a local accountancy firm as without the full facts of your business, it's hard to tell you what it best.

Going limited sounds like the better option if you don't want to loose benefits you need. I think it's also better from a NI point of view.

I currently pay myself a wage of £624 per month on my accountants advice, as apparently this means I don't have to pay NI, but it won't affect my entitlement.

Obviously, that's not a lot to live on for a month, so I can supplement it with a dividend (£34k per year or less to keep tax low).

Bear in mind though, that if you go limited, you can only pay yourself a dividend out of profit - you also need to keep your corporation tax ring fenced, as well as VAT money if you're VAT registered).

Hope it helps.

ILW

You probably need to budget £500+ pa for the accounts though.

leveller2911

Deleted_User wrote: »

Going limited sounds like the better option if you don't want to loose benefits you need. I think it's also better from a NI point of view.

I currently pay myself a wage of £624 per month on my accountants advice, as apparently this means I don't have to pay NI, but it won't affect my entitlement.

Obviously, that's not a lot to live on for a month, so I can supplement it with a dividend (£34k per year or less to keep tax low).



Paying yourself as little as possible,avoiding paying any NI whilst keeping your benefits entitlement and at the same time paying yourself a nice hefty wedge of Divies......

Playing within the rules but morally as bad as any multi-national company avoiding paying the correct amount of tax.

terra_ferma

that's how ltd co's work, nothing special, no big loophole. some people are a bit naive.
people who are employed pay much more taxes then businesses, that's how the system works, it's MEANT to work, I'm afraid

fred7777

terra_ferma wrote: »

don't dividends count as income though?

Yes but they are paid at a different rate of income tax (can be much lower).

Also there is no necessity to pay any dividends.

Wywth

fred7777 wrote: »

Yes but they are paid at a different rate of income tax (can be much lower).

Also there is no necessity to pay any dividends.

The question is not one of taxation, but rather retention of benefits.

Wywth

JWmoney wrote: »

Hello all,

I am currently, quite newly self employed. I earn about £250 per month profit and receive housing benefit. I am too young to receive WC credits and do not want to claim any other benefits anyway.

My concern is that I will often have a random client that will come full time for a month, that will bump the profit up about £400. The next month, a full-timer will be off for weeks, someone else will be sick and it will go down £800.

According to the council, if month A I earn £700 profit, I am not entitled to anything, even if month B I only earn £100 profit. They say I will just get my HB entitlement back for month B that I didnt earn enough. My entitlement doesn't get any higher if I earn £50 profit or £300 as I am under £25 and on a limited amount of benefit.

My concern is how they work this out as obviously the good months when I make more profit will be rolling capital to get me out of a sticky situation when I have a bad month. My quarterly rent is £3k, among other running costs and making more profit just means I can finally do a bit of advertising one month or work on my premises that I desperately need to do. I need to get some rolling capital behind the business, so that I can improve it in about 6 months time to advertise and employ a member of staff. I cannot employ someone without a few grand savings in the company as I have to ensure I can cover this persons wages for X months, if work goes dry again.

I am considering becoming Ltd to keep things simple with my wage. I can then pay myself a set £300 per month and build some capital up in the business, which is vital. I know this capital WILL eventually be spent on the business again, I will NOT take it as a lump sum or anything like that. When there is enough capital, I plan to increase my wage, assuming my monthly profits have risen and of course come off all housing benefit.

I am wondering if I am allowed to do this, or, as a director, will the rolling capital still be classed as my capital and therefore effect my benefits entitlement?

THANK YOU :-)

If you only earn £250 or £300 a month, do you really need an employee working for you?

Even at NMW the amount you earn is the equivilent of less than 3 hours per day.