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Caught in a vicious circle between MHRC and DWP - does anybody know the rules well enough to advise?

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Hi all
I am an owner-director of a small limited company, variously classified as 'employed' or 'self employed' depending whether it's HMRC or DWP, and depending what rules you're looking at!
When Corona hit, my business dived, and I claimed Universal Credit for the first time ever.
Since then, fragile recovery is underway, but not sufficient enough to live on. Some invoices have now been paid into the business, which is good, but this is needed to re-fill the tax-pot set aside to pay HMRC. DWP accept that this is capital, but they treat it as income, even though it's needed for tax - it's not mine to live on, otherwise I can't pay my tax bill in January and HMRC will hunt me down! 
What it boils down to is this:
1. I owe the taxman about £6,000 in January
2. Invoices paid in September will cover that £6,000
3. I have no other income - nothing
4. DWP rules say I can't claim Universal Credit because that £6,000 is now in the business as capital
5. HMRC rules say I have to give them that £6,000 in January
6. So none of the money in the business is mine to live on
7. And I cannot claim Universal Credit as a consequence
8,. Which leaves nothing to live on, unless I use the £6,000, and then I can't pay HMRC.
Is that it, does anyone know? Because there is capital in the business, DWP remove the support, even though that capital is not mine to live on, I owe it to HMRC??
Any advice welcome, as even the DWP are giving conflicting guidance - they say one thing on the phone, then follow it up with a message saying something else.
Help!
N

Comments

  • Sorry - that's HMRC - typo in the title and I don't see how to edit it, I am new!
  • Better to post here: https://forums.moneysavingexpert.com/categories/benefits-tax-credits
    In the context of self employed people, I am aware that DWP have accepted that tax due can be taken into account for UC purposes, even if the funds are in a personal bank account.
  • Jeremy's advice is always good & reliable, but just in case you want to avoid having to persuade DWP, you could always pay the £6,000 over to HMRC as it comes in, i.e. early. The money will simply sit 'on account' with HMRC until it is due. Then you automatically have proof that a) you no longer have the funds and b) the purpose you have put them to.
  • calcotti
    calcotti Posts: 15,696 Forumite
    Part of the Furniture 10,000 Posts Name Dropper
    edited 24 September 2020 at 3:44PM
    Jeremy's advice is always good & reliable, but just in case you want to avoid having to persuade DWP, you could always pay the £6,000 over to HMRC as it comes in, i.e. early. The money will simply sit 'on account' with HMRC until it is due. Then you automatically have proof that a) you no longer have the funds and b) the purpose you have put them to.
    That is the clearest way of doing it. With interest rates so low hanging on to the money if you know it will be due has no advantages - just increases the risk of dipping into it and not being able to pay the tax bill when it falls due.

    having said that, DWP were clear earlier in year that if a self employed person could show money was needed to be set aside for tax liabilities then that amount would be disregarded as capital for UC (although i can't find a document confirming this).
    Information I post is for England unless otherwise stated. Some rules may be different in other parts of UK.
  • What you have outlined is correct - the point Calcotti mentions about DWP confirming they would disregard money set aside for tax bills was only in respect of capital. Income into the business is still treated in the normal way. The only way to reduce the impact of income is to have an expense to match it in the same assessment period - so paying it to HMRC would be the only option. 
  • They have today announced that self assessment tax due in January 2021 can be deferred to January 2022. I believe I am right in this as it affects me! I'm not sure if this affects your tax due in January 2021 if you are limited company director but its worth looking into!
  • calcotti
    calcotti Posts: 15,696 Forumite
    Part of the Furniture 10,000 Posts Name Dropper
    nic99nic said:
    4. DWP rules say I can't claim Universal Credit because that £6,000 is now in the business as capital
    Just to add - you have misunderstood the impact. The capital limit preventing a UC claim is £16,000, not £6,000. It is the £6,000 as income that has resulted in no UC payable for the month. You cannot retrospectively make a payment to reverse the calculation for that month. 

    However some of that income will be carried forward to the following and will again reduce payable unless you have expenses you can set off against it - such as paying some money to HMRC. 
    Information I post is for England unless otherwise stated. Some rules may be different in other parts of UK.
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