Universal credit for furloughed directors of own company

money_saver_4

We found out today that we will get a very small amount from Universal Credit. This is because despite making significant losses due to not being allowed to trade, my husband and I paid ourselves around £700 each in furlough pay, so UC deducted this as PAYE earnings and disregarded the losses. Is this right? It seems unfair. If we made a profit, they would happily take that into account, but as we made a loss, they disregarded it and only took our PAYE furlough pay into consideration. As it stands, we are supposed to survive on £400 UC per month (with two children and a mortgage) while paying ongoing business expenses so our employees have a job to come back to, and we qualify for no other COVID help. In case anyone mentions, we have applied for a loan and still waiting. Thank you in advance for any advice. 

Fire_Fox

money_saver_4 said:

We found out today that we will get a very small amount from Universal Credit. This is because despite making significant losses due to not being allowed to trade, my husband and I paid ourselves around £700 each in furlough pay, so UC deducted this as PAYE earnings and disregarded the losses. Is this right? It seems unfair. If we made a profit, they would happily take that into account, but as we made a loss, they disregarded it and only took our PAYE furlough pay into consideration. As it stands, we are supposed to survive on £400 UC per month (with two children and a mortgage) while paying ongoing business expenses so our employees have a job to come back to, and we qualify for no other COVID help. In case anyone mentions, we have applied for a loan and still waiting. Thank you in advance for any advice. 

I think you may be entangling your personal and business finances, muddling up your roles ('hats') as directors/ shareholders and as employees.

As I understand it .... Universal Credit is intended to supports individuals and households with ongoing basic living expenses. Mortgages aren't covered, we are expected to have 'rainy day' savings or income protection insurance or suchlike. Businesses expenses aren't covered by UC either, that is where grants, loans, business rates relief, deferral of taxes come in.

What is taken into consideration is personal income and assets, although the home we live in is disregarded. Business profit is available as personal income (director/ shareholder hat). Furlough wages is personal income (employee hat).

Have you applied for a mortgage holiday from your lender? Have you claimed council tax reduction?

whizzywoo

As directors of a limited company OP and partner will be treated as being self employed.

When inputting the business expenses did you also put the directors' wages costs through as expenses as well as the other expenses?  That way the RTI wages reported to Universal Credit will be offset by the business expense of the wages, so they balance each other out.

But I agree, with other business expenses going through you may have made a loss and UC does just ignore losses.  

calcotti

Fire_Fox said: As I understand it .... Universal Credit is intended to supports individuals and households with ongoing basic living expenses. Mortgages aren't covered, we are expected to have 'rainy day' savings or income protection insurance or suchlike. Businesses expenses aren't covered by UC either, that is where grants, loans, business rates relief, deferral of taxes come in.

What is taken into consideration is personal income and assets, although the home we live in is disregarded. Business profit is available as personal income (director/ shareholder hat). Furlough wages is personal income (employee hat).

As whizzywhoo says director of own business trading as company is treated as self employed for UC. The self employed  ‘earnings’ are the difference between business income and business expenses and this needs to be reported every month.

whizzywoo said: But I agree, with other business expenses going through you may have made a loss and UC does just ignore losses.  

Losses can be carried forward. https://revenuebenefits.org.uk/universal-credit/guidance/entitlement-to-uc/self-employment/calculating-income-from-self-employment

When you pay yourself through PAYE that payment is reported by HMRC to UC and is taken into account as employed income. However, as explained by whizzywoo, the payment is a business expense which needs to be included in the business income and expenditure details that you provide to UC. However the self employed ‘earnings’ were already nil (or less) it will not make any difference to the amount of UC currently due.

OP, if you have reported your business income and expenditure incorrectly you could try posting information on your journal correcting this and asking UC to recalculate your UC entitlement. I don’t know if they will actually do this.  

Presumably you have been reimbursed the furlough pay through the CJRS.

whizzywoo

calcotti said:

whizzywoo said: But I agree, with other business expenses going through you may have made a loss and UC does just ignore losses.  

Losses can be carried forward. https://revenuebenefits.org.uk/universal-credit/guidance/entitlement-to-uc/self-employment/calculating-income-from-self-employment

Thank you @calcotti I hadn't realised that losses could be carried forward in Universal Credit.  It's not an area I have dealt with very much.  

calcotti

whizzywoo said:

calcotti said:

whizzywoo said: But I agree, with other business expenses going through you may have made a loss and UC does just ignore losses.  

Losses can be carried forward. https://revenuebenefits.org.uk/universal-credit/guidance/entitlement-to-uc/self-employment/calculating-income-from-self-employment

Thank you @calcotti I hadn't realised that losses could be carried forward in Universal Credit.  It's not an area I have dealt with very much.  

Nor me - I just remembered having read that page before!

money_saver_4

Thank you, everyone, for responding and so sorry for the delay in getting back to you. I finally understand how the system works. But, really hope we don't have to rely on UC for much longer, otherwise, we will starve!