UC and self employment.

in Benefits & Tax Credits
6 replies 169 views
Hi, I was just after a little advice please. 

We currently get child tax credit but will obviously have to move over to UC soon

my husband works full time and owns a business as a partnership, so is self employed. 
I am a full time carer for my disabled son so do not go out to paid work. 

What my question is, is how does UC work when your self employed and do not have a steady income and UC is looked at month by month
Some months he can take a large profit but other months he will actually be in negative and not actually receive any income. 

Any advice is really greatly received, Thank you 

Replies

  • calcotticalcotti Forumite
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    Each month he will have to report business and expenditure on a cash accounting basis. The difference will be treated as his earning for the month.
    UC payable is calculated on a monthly basis. After the 12 month grace period he will be subject to the Minimum Income Floor which means that he will be assumed to earn a certain amount each month even if he earns less.
    He could start by reading this information
    https://www.gov.uk/government/publications/universal-credit-and-self-employment-quick-guide
    and
    https://revenuebenefits.org.uk/universal-credit/guidance/entitlement-to-uc/self-employment/
    Information I post is for England unless otherwise stated. Some rules may be different in other parts of UK.
  • edited 13 May at 3:59PM
    NedSNedS Forumite
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    edited 13 May at 3:59PM
    In the first year, assuming he is awarded a start up year (should be), then self-employment on UC works on a simple profit and loss cashflow basis. If he makes a large profit one month then UC would be reduced (or zero) and if he makes nothing, or a large loss, then would receive full UC in that month. Any profits in a month are offset against any previous losses. For example, you purchase £1000 of materials for a job in month 1, so you have a £1000 loss. In month 2, you complete the job and charge the client £1500 for the work. You have £1500 income in that month but it is offset against the £1000 loss carried forward from last month, so your profit for the job is £500 and that would be treated as your income for that month.
    One could argue that although UC does not cope very well with the fluctuating cash flows of some businesses, it actually gives you the full support in the months when you need it / have no income, and reduced (or zero) support in the months when you've received lots of income from your business.
    After one year, everything (potentially) changes and the Minimum Income Floor applies. Here you will be expected to earn (or make a profit) the equivalent of NWM x 35h/week (less tax and NI), which is currently around £1277.50 for a person 25 and over. If you make a profit of less than your MIF, you will be treated as if you have earned that amount. In month's in which you have earned more than that amount, the higher earnings will be taken into account.


  • calcotticalcotti Forumite
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    Ned, Am I write in thinking that you can't offset the MIF with any carried forward losses? (I'm being lazy - I know I could look it up.)
    Information I post is for England unless otherwise stated. Some rules may be different in other parts of UK.
  • NedSNedS Forumite
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    calcotti said:
    Ned, Am I write in thinking that you can't offset the MIF with any carried forward losses? (I'm being lazy - I know I could look it up.)
    Correct, the MIF would apply each month regardless of any previous losses. Self-employed earnings (profit -losses) are calculated in exactly the same way, and if the earnings (profit -losses) for the AP are less than the MIF, then the MIF will apply when calculating the UC award.


  • loveduns0loveduns0 Forumite
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    Thank you both for your help. So I guess he will have to have his accountants do his accounts every month then, that’s going to cost a fortune 😞 

    Could I just ask, do you know how would VAT and tax work? As he keeps a certain amount of money aside each month to pay the VAT bill and his tax. Would that have to be declared as income or would we just take that off when he actually goes to pay it.

    It seems so incredibly complicated!  
  • edited 14 May at 6:49AM
    calcotticalcotti Forumite
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    edited 14 May at 6:49AM
    loveduns0 said:
    Thank you both for your help. So I guess he will have to have his accountants do his accounts every month then, that’s going to cost a fortune 😞 
    You shouldn't need an accountant to do income and expenses based on a cash basis. 

    It is essentially a statement of all money received and all money spent during the month. There is no accrual accounting involved. There are some expenses that have to be done on a flat rate basis but once these are mastered it shouldn't be too difficult.

    You need to report the figure on the day the monthly UC period ends.
    loveduns0 said:
    Could I just ask, do you know how would VAT and tax work? As he keeps a certain amount of money aside each month to pay the VAT bill and his tax. Would that have to be declared as income or would we just take that off when he actually goes to pay it.
    The tax and VAT are included as an expenses when the payments are made.

    Very important to keep money for the business separate from his personal money. Money in the business account will be ignored as capital.

    Please do read the links I provided.
    Information I post is for England unless otherwise stated. Some rules may be different in other parts of UK.
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