Need extra money, but self employed on HB, WTC and dont take a wage. Please help!

antrobus

L.Underhill wrote: »

... Its been growing very slowly over the last few years but we are beginning to see a nice rise in the money we put into the account each year now....

The amount of money that you "put into the account", i.e. your sales, could be regarded as irrelevant; it's the amount of money that you can take out of the account, as in profit, that you should be focussing on.

L.Underhill wrote: »

..Im worried if I put money into my personal bank account to help us out, that HB will stop, then we can't pay the rent, ...

It makes no difference which bank account you pay the money into. Income is income as far as both benefits and taxes are concerned.

BigAunty

L.Underhill wrote: »

Merlin, Thank You, do you have any links to the information about this and dates this will come into action please.

I don't have any info for this specific point though hopefully other posters will.

However, if/when the Universal Credit system is bought in, this will have huge changes for the self employed so do some research in this area. At the moment, it's only being piloted in a few areas, is massively behind schedule and the IT systems seem to be terrible.

At the mo, tax credits are paid out on actual income and by working x hours per week on the business. The white paper that set out UC made clear the govt believe that it's actually made the self employed long-term reliant on benefits rather than self-sufficient from their business. As far as the govt are concerned, those with unprofitable businesses should wind them down or seek regular employment on top. They don't want the criteria of merely being busy for x hours per week to qualify for WTC to continue, they want people to develop their businesses.

Under UC, they want the self employed to aspire to at least earning ta Minimum Income Floor, proposed to be the National Minimum Wage. To do this, the govt want to bring in more conditionality. Tax credits are being scrapped. They want to treat the self employed after a year of establishing their businesses as if they are drawing the NMW, whether or not they are, that their benefits will be calculated on this notional income or be subject to extra conditions.

So do some research on this area as the govt has signalled that the self employed will be under much more scrutiny under UC and cannot coast along on benefits as before (that's clear in the white paper).

purdyoaten

antrobus wrote: »

The amount of money that you "put into the account", i.e. your sales, could be regarded as irrelevant; it's the amount of money that you can take out of the account, as in profit, that you should be focussing on.



It makes no difference which bank account you pay the money into. Income is income as far as both benefits and taxes are concerned.

Hopefully you will agree that the highlighted statement is what has contributed to the op problems. The amount that can be taken out is not related to the profit, and I am fully aware that you know this! Basically, it does not matter how much is taken out of the business - the profit is what counts!

pmlindyloo

May I suggest that if you do not already have an accountant then you get one. Costing about £200 a year they are worth their weight in gold and will not only make sure you claim all legitimate expenses but will show you how to do your accounts.

I think you are very confused about it all.

All the income you make from your business is your income. You need to use it to pay for expenses for your business and your living expenses.

You can withdraw the money needed for living expenses from your business account and transfer it to your personal account. These are known as 'drawings' and are not taxable (in fact my husband doesn't even note 'drawings' on the accounts) There is no legal requirement to have a business account - it is just useful to have so you can keep living expenses and business expenses separate.

At the end of the tax year your accountant will do the accounts and tax is then paid on the profit

The profit then can be left in the business account so that you have a safety net for expenses or spent on personal things or business things.

As regards tax credits and housing benefit they use two different systems.

Tax credits are based on your profit shown by your tax self assessment.

Housing benefit operate a different system. They allow certain expenses and not others.

You should work out a monthly budget and find out how much money you need to live on - so, rent, council tax, utilities, etc etc. Does your business support these on a monthly basis?

As some people have already said you cannot keep all your money in the business account solely for business purposes. It is money that you are earning and should be used for your living expenses as well as keeping the business afloat.

Once you have done some sums then you really should contact the council about your housing benefit if you have a large amount in the business account.

How have they been working out your HB up to now?

Tax credits really shouldn't be a problem at the moment because they will use your self assessment information.

Hope this helps.

pelirocco

densol wrote: »

Paying someone else a wage as an employee of the business is a legitimate expense. Paying yourself a wage from a self employed or partnership is not an expense. It's a drawing on anticipated net profits.

Surely this only applies if its a ltd company , even then the directors are employees of the company

densol_2

pelirocco wrote: »

Surely this only applies if its a ltd company , even then the directors are employees of the company

What ? No of course it doesn't. As a self employed person - I can employ Mr x and pay him a salary etc and that is a business expense. I don't " employ " myself and if I take money out of the business and spend it on private things - its me taking money from potential profits and is NOT an expense.

Only a limited company which is a seperate legal entity can employ me as the director etc and the salary would be an expense of the company.

L.Underhill

Thank you so much to everyone who has contributed to this - phoned various people (including HMRC), done online calculations and had a thorough search on the net for a ton of information.
I am actually excited now (if a little nervous) to begin to finally sort this out. A few more calls need to be made and a long sit down of financial planning but I feel very positive about making a new move with this. I really appreciate all the help and advice, not so much the sarcastic jibes from some, but the genuine help has been extremely helpful.
Lots to sort out now, so I'm leaving this as is.
If I have any more questions ill probably start a separate thread to whittle down the confusion lol

Cheers everyone

Mojisola

densol wrote: »

What ? No of course it doesn't. As a self employed person - I can employ Mr x and pay him a salary etc and that is a business expense. I don't " employ " myself and if I take money out of the business and spend it on private things - its me taking money from potential profits and is NOT an expense.

It's not an 'expense' in that sense but the self-employed person is allowed to take money from the business account - they have to, to pay their bills.

It comes out of a different 'pot' when doing the accounts but a business that doesn't make enough money to pay the person who is putting in the hours isn't a viable business.

dippy3103

I wish you all the luck in the world- maybe you just need a little push to get yourself up & running properly and sustaining yourself.

gayleygoo

I am not well informed on the ins and outs of business finances, but plan to make extra income as a self-employed seamstress in the next few months. Just wondering if you have worked out your business costs well, as that seems to be a major factor in whether or not any money can be made.

For example, I sew a dress.
Materials (including fabric, thread and various other things like wear on tear on sewing machine, scissors and other equipment which will need to be replaced at some point) £16
Labour: (6) hours taken to cut, sew, use Etsy to advertise item, some allowance for packaging time and going to post office X £7 per hour (or whatever wage you intend to pay yourself) £42
Overheads - in my case of working from home, overheads are small but if you rented a studio, advertised etc, yours would be much more. £5
Percentage of profit, for business expansion - 10% of above, rounded to £6

I would need to charge at least £69 for said dress in order to pay myself a wage and have a percentage dedicated to business expansion. This percentage could be increased to 20% or more if needed. Many people go ahead and double or even quadruple the whole figure to allow for wholesale or retail pricing, but it really depends on your business. My above example is quite basic, you can probably get better info with a google search!

You say you have money in the bank from your sales etc, but what does that pay for? Entry to festivals/stall space, advertising, insurance etc? After several years, I think you do need to be taking a wage from your sales. If you "can't afford" to do so, then you are not charging enough for your products, or your business isn't viable. You're practically providing a service at "cost price" - at what point will that change? Could you sell artwork (or hippy stuff, I love those stalls ) at the festivals alongside doing tattoos, to make more profit? I know of a few people who have set up stalls at festivals - they get to go to a festival, have fun and maybe make back a little more than their entrance fee by selling candles or soap, but they couldn't actually live off the money.

If each of you take a wage and put what's left into the business pot, you'll have a more accurate idea of how well your business is doing. I know some people don't take a wage for the first year or two of running their business, but you are right in that there does need to be a change at some point, and you need to cover your living costs if nothing else! It seems to me like you are worried that if you and your OH take actual wages, your benefits will be reduced and you'll not be in any better of a position. Understandable, but I'm not sure what is above board, or not, here.

Using cash-in-hand money from selling artwork to pay bills, does sound to me very much like "taking a wage", since paying for daily life tends to be what wages are used for You might not be frivolous with it, but I think HMRC would see it as income and they could get tetchy if you don't declare it as such. You might be able to earn under your tax allowances though without affecting the WTC. HB could be different though. How do you pay for national insurance, pension contributions/future savings etc? What is your plan if you need to replace the boiler, washing machine or want to go on holiday? I'm not expecting answers, those are just things you need to budget for and I doubt your benefits cover.

Have you researched the likes of shared-artist spaces in your area? There are a couple of venues in my area that offer an amount of time/space each week to artists. I've no idea what they cost, but there is the added publicity and networking benefits from using them