Need a UC expert regarding self employment via Ltd Company??

VeryInTheRed

Hi all,

I went self employed this year.

We set up a Ltd Company and the shareholding is split as: Me 35% my wife 35% my parents 15% each.

My parents invested £50k to set up the company.

It is a franchise and £32k of the £50k was used to purchase the franchise. Another £7k was used to purchase tooling and pay a van deposit.

The £50k is sat in the directors loan account as a liability.

I had been using what was left of the investment as survival funds. I went from a £55k salary to self employed.

My monthly bills come to £2k (I have an ex-wife and two children with her, they stay with me 2-3 nights per week).

I pay my self £700 pcm and my wife takes home £1,400 pcm from her full time job.

I have applied for UC as the survival funds are near gone.

Job centre have said I will be treated as a sole trader as I am the only person actively involved in running the business.

The main question is this:

YTD profit is say minus £8k

We are now generating profit each month but ytd will still be negative for about 4-6 months.

Job Centre say I have to declare the monthly profit each month as income.

As a Ltd I cannot withdraw any profit until the company is showing a ytd surplus. Therefore a profit in the current month cannot be taken as income.

The staff member had to go away and look into it and this was the response they came back with.

Once we are in a profitable situation I can take a further income and stop using UC.

If any one has any knowledge of this I would greatly appreciate your thoughts.

Best, P.

calcotti

Each month you will be required to report to DWP what income has been received in connection with your business and what you have spent in connection with the business. The difference will be taken as your earnings.
This has nothing to do with how your accounts will be prepared for other purposes such as tax or VAT.
It is simply money in and money out.
What you have been told by DWP is correct.

https://www.gov.uk/self-employment-and-universal-credit
https://www.gov.uk/government/publications/universal-credit-and-self-employment-quick-guide/universal-credit-and-self-employment-quick-guide
https://www.citizensadvice.org.uk/benefits/universal-credit/on-universal-credit/reporting-self-employed-earnings/

Once you have been trading for 12 months the Minimum Income Floor will apply which means that you will be treated as earning a certain amount even if you earn less, but your actual earnings will be used if you earn more.

huckster

When you registered the self employment with UC, they should have attached this document to your journal noted as a UCD5

https://www.whatdotheyknow.com/request/454844/response/1116630/attach/13/Self%20Employment%20Guide%20UCFS5.pdf

Have a read of the document. For a Government benefit document, it seems quite clear.

Icequeen99

This is based on Regulation 77 of the UC regs which talks about a situation 'Where a person stands in a position analogous to that of a sole owner or partner in relation to a company which is carrying on a trade or a property business, the person is to be treated, for the purposes of this Part, as the sole owner or partner'

You could try appealing on the grounds that you are not in a position analogous to that of a sole trader in relation to the company. Otherwise, what they have told you is correct.

IQ

NedS

VeryInTheRed wrote: »

The main question is this:

YTD profit is say minus £8k

We are now generating profit each month but ytd will still be negative for about 4-6 months.

Job Centre say I have to declare the monthly profit each month as income.

As a Ltd I cannot withdraw any profit until the company is showing a ytd surplus. Therefore a profit in the current month cannot be taken as income.

This is correct. UC calculate your earnings each month based upon the profit/loss of the business in that month (assessment period), on a month by month rolling basis.


UC does not care about a £8K loss you may have made before claiming UC. All UC cares about is your cash flow into the business (income) less your cash flow out of the business (allowable expenses) which is your earnings for UC purposes, regardless of whether your business structure allows you to take those profits as earnings or not.

tomtom256

Icequeen99 wrote: »

This is based on Regulation 77 of the UC regs which talks about a situation 'Where a person stands in a position analogous to that of a sole owner or partner in relation to a company which is carrying on a trade or a property business, the person is to be treated, for the purposes of this Part, as the sole owner or partner'

You could try appealing on the grounds that you are not in a position analogous to that of a sole trader in relation to the company. Otherwise, what they have told you is correct.

IQ

But he is a partner so would be treated as one, especially as he has ownership and control of 35% of the business, much more than his parents and the same % as his wife.

calcotti

tomtom256 wrote: »

But he is a partner so would be treated as one, especially as he has ownership and control of 35% of the business, much more than his parents and the same % as his wife.

As a partner he has to report monthly income and expenditure for the business in exactly the same way as a sole trader would. As the other partners appear to be ‘sleeping’ partners i don’t know if the DWP will take all the ‘profit’ into account for OP or only a portion of it.

tomtom256

calcotti wrote: »

As a partner he has to report monthly income and expenditure for the business in exactly the same way as a sole trader would. As the other partners appear to be ‘sleeping’ partners i don’t know if the DWP will take all the ‘profit’ into account for OP or only a portion of it.

It will all depend on what he states at the Gateway Intervention and what evidence is supplied.

calcotti

House of Commons deposited papers
http://data.parliament.uk/DepositedPapers/Files/DEP2019-0980/64._Identity_Verification_v10.0.pdf
http://data.parliament.uk/DepositedPapers/Files/DEP2016-0778/Identity_verification_and_standards_of_evidence_v4.0.pdf