Can I pay myself less from my business to rely more on benefits?

MrJester

I'm currently unemployed, and receive universal credit. It only covers rent and about a weeks worth of food.

As I understand the universal credit system, if you're working then universal credit don't stop completely but they still give you benefits in relation to how much you're earning.

I'm setting up a business, and I'm expecting full funding within a couple weeks. I'm running over costs and I'm worried about the business lasting past year 1, so in a way to reduce business costs I'm considering paying myself even less.

With it being a business can I choose to pay myself less to keep benefits coming in to even it out, and thus reduce costs on the business? I'm not trying to snuff the system here, but trying to be realistic about options to keep the business afloat and not have to go back into unemployment!

sheramber

If your business is spending more than it is taking in where does the money come form to pay your 'wage'?

Universal Credit is worked out according to the cash in/cash out each month. You will need to supply this information each month.

https://www.gov.uk/government/publications/universal-credit-and-self-employment-quick-guide/universal-credit-and-self-employment-quick-guide

There is information here https://www.citizensadvice.org.uk/benefits/universal-credit/before-you-apply/self-employed/

When you are self employed you don't have a wage as such. Your net profit ( gross income less allowable expenses) at the end of the year is your income. That is the figure you will pay income tax and NIC on.

MrJester

sheramber wrote: »

If your business is spending more than it is taking in where does the money come form to pay your 'wage'?

Universal Credit is worked out according to the cash in/cash out each month. You will need to supply this information each month.

https://www.gov.uk/government/publications/universal-credit-and-self-employment-quick-guide/universal-credit-and-self-employment-quick-guide

There is information here https://www.citizensadvice.org.uk/benefits/universal-credit/before-you-apply/self-employed/

When you are self employed you don't have a wage as such. Your net profit ( gross income less allowable expenses) at the end of the year is your income. That is the figure you will pay income tax and NIC on.

Thanks this is exactly what I was looking for. So it looks like my universal credit funds will completely depend on my profit earnings if I am self employed.

However, I'm not yet sure if I will be registered as "sole trader" or if I set up the business as a limited company. And whether/how this affects the universal credit self employed rulings.

Similarly, if the universal credit is worked out on 'actual earnings' (as it states) then does that mean cash balance in the business, or whether the net income per month is positive (or negative)?

For example, lets say I have £10k at business launch. The net income doesn't reach positive (profits) until month 6, and loses 1k each month.

I've budgeted in for an account to help with all this I'm sure I'll need it

Anchoress

I might be wrong but I thought they the assume self-employed earned 35hours x NMW. Or haven't they brought this in yet?

Edit: I should have read the links supplied before posting. I see it's already mentioned there.

CIS

To clarify (due to the different nature profits are dealt with) - by self employment are you meaing you're a sole trader or you're setting up a limited company ?

Craig

Icequeen99

MrJester wrote: »

Thanks this is exactly what I was looking for. So it looks like my universal credit funds will completely depend on my profit earnings if I am self employed.

However, I'm not yet sure if I will be registered as "sole trader" or if I set up the business as a limited company. And whether/how this affects the universal credit self employed rulings.

Similarly, if the universal credit is worked out on 'actual earnings' (as it states) then does that mean cash balance in the business, or whether the net income per month is positive (or negative)?

For example, lets say I have £10k at business launch. The net income doesn't reach positive (profits) until month 6, and loses 1k each month.

I've budgeted in for an account to help with all this I'm sure I'll need it

If you have a ltd company with just you - they will look through the limited structure for UC and treat you as self-employed so what you have read still applies to you.

You take your income for the month and you deduct your expenses - and that is the figure you declare to UC. You can do that for 12 months and after that you will be expected to make the minimum income floor level (unless you are exempt from it).

IQ

MrJester

Icequeen99 wrote: »

If you have a ltd company with just you - they will look through the limited structure for UC and treat you as self-employed so what you have read still applies to you.

You take your income for the month and you deduct your expenses - and that is the figure you declare to UC. You can do that for 12 months and after that you will be expected to make the minimum income floor level (unless you are exempt from it).

IQ

Does "income" exclusively relate to incomings into the business within that month, or are startup funds (cash balance of the business) included in that?

fishybusiness

There is a good article here covering some of the point raised.

http://www.taxation.co.uk/Articles/2015/04/21/332941/universally-complex

If you have a ltd company with just you - they will look through the limited structure for UC and treat you as self-employed so what you have read still applies to you.

Do you know where that policy is defined, can't find it using Google.

Icequeen99

fishybusiness wrote: »

There is a good article here covering some of the point raised.

http://www.taxation.co.uk/Articles/2015/04/21/332941/universally-complex




Do you know where that policy is defined, can't find it using Google.

Regulation 77 of the UC regs
http://www.legislation.gov.uk/uksi/2013/376/pdfs/uksi_20130376_310516_en.pdf

OP - the UC regs on self-employment in the link above give you the detail of what is defined as income and expenditure.

However you should also look at reg 60 about depriving yourself of earned income in order to increase your UC.

IQ

fishybusiness

Thanks, makes interesting reading.

Op, lets go with this

With it being a business can I choose to pay myself less to keep benefits coming in to even it out, and thus reduce costs on the business? I'm not trying to snuff the system here, but trying to be realistic about options to keep the business afloat and not have to go back into unemployment!

If your business costs are high in the first year or two, which is entirely possible, and you can't afford to pay yourself say a full weeks wage for a full weeks work, then you are not choosing to pay yourself less if you see what I mean. Your costs are legitimate, and starting a business often means taking no wages for a while.

You may need to find a balance, and legitimise that balance based on the UC rules. Will you be able to claim Working Tax Creds too?

In the past I've stopped wages, but put them in the books in to the directors loan account - limited company, so I can call on them later.