Housing Benefit working out income by adding personal drawings+gross profits? uh?

Legacy_user

I am self-employed and have generally been on a low income for the last 18 months (below the minimum national wage, I believe that's about £ 120 a week).

I have been having problems with the Housing Benefit Services for months. They kept calculating a wrong income even though I sent them self employed supplements plus bank statements. They maintained that my income is being £ 156 per week.

There's absolutely no way I have been earning that money. In January, for example, my net profit was £ 230 for the whole month. Since then it's been worse.
I don't have children. I checked with online tools and all of them implied clearly that I should be granted near or near full Housing Benefit. Instead, it's been a nightmare for months and I never know what's going to happen next.

I started sending complaints, they finally replied to my letter and it turns out that they are out of their minds.

That's what they basically wrote:

''Your income has been calculated correctly. You stated on your self–employed supplement form that you had a gross profit of £3404.00 during the period 1 July 2012 to 31 December 2012. However, it has been established from your bank statements that you have been making personal drawings which should also be included as part of your gross profit. Therefore, it was determined that during the stated period you actually had a gross profit of £5983.00''

I could not believe that. They are basically adding my gross profits, to my gross profits!!

In my bank statements, there's a simple column for 'paid out' and one for 'paid in'.

When I make any sales, they clearly show in the 'paid in' column. I then draw the money out and transfer them in my personal account. Through online banking, I always mark whatever money I draw out of my business account, as ' (my name)personal drawings £ xxx', so that when I do my bookkeeping, I quickly spot any money that I took out. That obviously always appears in the 'paid out' column. Duh.

But my personal drawings are still my gross profits ,drawn out! They have nothing to do with my gross profits, as my gross profits are calculated separately.

I don't have an accountant for obvious reasons, but why do you think these people are adding my personal drawings to my gross profits? I don't think I am doing anything out of the ordinary. I listed all sales and all expenses and from them I work out my profits. I tried to be as simple and as clear with them as possible. I think it's insane.

bigjl

You need an accountant.

You are taking money from you business account and putting it in your personal account.

The figure transferred is what the revenue can consider "income".

As you must be paying all the business bills from that account so what are you paying from your personal account as far as the business goes?

Sorry but from the info given I think they are correct.

In business the only money you transfer from the business to your personal finances is your income.

The system is starting to adapt to those using unprofitable or low profit self employment to obtain benefits.

If you fit the mould then you fit the mould.

An accountant would have been able to sort this.

My wife has had no issues but then again she has an accountant and only applies for WTC and CTC.

She only uses her personal account and had to supply reciepts for her expences.

She doesn't make much more in profit than your lower figure.

Think about it from their direction for a second.

Self employed person declares £120 a week and pays himself £156.

If you get a tax bill you would pay it from the business account.

If you have a limited company set up anything you draw is subject to tax at a later date.

But you have still taken the pre tax figure as wages.

If you are a sole trader and draw money out it will still be considered pre tax wages as far as I am aware.

And I suspect you are wrong on the NMW, it is an hourly rate not a weekly total.

bigjl

And if you drew out just under £6k I reckon you would have deductions of less than £600 for tax and NI.

Not the £2500 you elude to.

System

bigjl wrote: »

As you must be paying all the business bills from that account so what are you paying from your personal account as far as the business goes?

No. I am NOT paying ANY business bills/ expenses from my business account, except my NI2 taxes every month, which are taken out automatically through Direct Debt.

All other expenses are paid through a separate credit card on my personal account. I buy my assets through the credit card. I then pay the credit card from the money in my personal account, which is made of the gross profits I transferred and marked as 'personal drawings'. I then mark all expenses on a written list.

I do this because although I have a credit card on my business account, it is rubbish and not as good as my personal credit card.

In any case, I have always submitted a clear list of all income and all expenses.
I once spoke to someone from the Local Council (my landlord) and they said that all I had to do was to submit business bank statements and/or a list with all money going in and out of the business. I have supplied both. I have marked all the extra expenses that are NOT on my business account, on a written list and sent it to them. Exactly what the staff suggested me to do.

It's all very simple. My personal drawings ARE my gross profits, and I then subtract all expenses from them. I just mark all expenses on a list and then subtract them from my gross profits/personal drawings, whatever you want to call them. That's how I calculate my net profits.

As I understand it, my HB is calculated according to my net profits. That's my real income. It does not matter if one month I buy an asset for £ 1000 and resell it for £ 1001.

My income/earning/net profit on that asset would be 1 pound, even though on my business bank account my personal drawing would show as £ 1001.

The £ 1000 expense would appear on the written list and my personal credit card statement.

System

''My personal drawings ARE my gross profits, and I then subtract all expenses from them.''

No, actually I detract all expenses from the gross profit. I don't even bother about the personal drawings at all. Again, these include gross profits and expenses. That isn't my income.

StormyWeather_2

They should calculate HB based on your net profit.I think you need to resubmit information and ask for a reassessment.

Did you provide your credit card statements along with the bank statements? Perhaps you need to do that again, highlight any business purchases, number them, then refer to the numbers on your P&L accounts.

Also, wouldn't it be better to provide them with the net profit, rather than gross? So total income - (all expenses i.e. cost of stock + overheads) = Net Profit.

Are you going into the HB office or are you posting it?

benefitbaby

want_to_know_moreaboutit wrote: »

No. I am NOT paying ANY business bills/ expenses from my business account, except my NI2 taxes every month, which are taken out automatically through Direct Debt.

All other expenses are paid through a separate credit card on my personal account. I buy my assets through the credit card. I then pay the credit card from the money in my personal account, which is made of the gross profits I transferred and marked as 'personal drawings'. I then mark all expenses on a written list.

And here lies the problem. If you pay all earnings into the business account, and then pay all business related expenses out of the business account, what is left is profit and 'income' for HB purposes. Because you are using a credit card and paying it via your personal account the water has become muddied and it is not easy/straightforward to separate the business from the personal to determine income.

Is it possible to use the credit card but pay the balance from the business account? This would remove the 'mud' and give a transparent overview of your business.

bigjl

I don't see any point in trying to advise you as you seem to know more than any of us.

Though you need to see an accountant as you have no idea how to properly run your business finances.

Your accountant tells you what you can take out of the business, not you.

Every penny you take out of the business and out into your personal bank account is profit/income no matter what excuse or read on you come up with.

That seems to be a concept you fail to understand.

I all honesty your business model gives the appearance of somebody trying to artificially reduce their income using self employment.

Very common in this day and age, especially if the CSA is involved.

Somerset

Actually I understand the OP perfectly but he/she is accounting in a cack-handed way. First, never mix business and personal. Second, for the purpose of official scrutiny, make it as simple and clear as possible because ...........

Essentially, the OP is saying the business account receives only income, less some NI's. eg 6K
His personal, pays all business expenses. eg 2K
The business net profit is the net of the two. eg 4K
Housing say his/her profit is :
the 4K the OP submitted
plus the 6K he drew from the business
therefore per their calculation his business profit is 4K +6K = 10K

Since gross profit is only 6K the calculation is manifestly wrong. But if you want your figures to be accepted you need to show them in the simplest way possible.

StormyWeather_2

I think they need to highlight any business expenses on personal statements and explain them, one at a time if necessary.

The person looking over the accounts probably isn't an accountant.

It's possible that the first person who looked at the accounts decided that gross profit + personal payments = gross profit. And that subsequent assessors have been using this to calculate total earnings and HB.

tomtom256

want_to_know_moreaboutit wrote: »

But my personal drawings are still my gross profits ,drawn out! They have nothing to do with my gross profits, as my gross profits are calculated separately.

This confuses me. Are they or are they not your gross profits. Or am I missreading this?

You can't seem to decide so no wonder HB can't get it right.