Universal Credit Self Employed loan question

james72

Hi,

 

My business of 15+ years died during the lock downs. I had been on normal UC. I then switched to ‘self-employed’ or getting back to being self-employed – so still getting UC.

 

I’ve found it hard starting the business up from a stand start. There are a lot of costs. Each month, I have used £200 or so ‘spare’ from my UC towards the start-up costs. By ‘spare’ I mean I have cut back – things like switching off the hot water. Had cold showers until November [then I chickened out and put it back on].

 

I have to show my costs or business expenses and the money coming in.

 

 I would never get started – only using £200 a month. A friend offered to lend me £1,000. This was just for the business. They only want their money back ‘first’ when I’m finally set up and have money coming in. They are not looking at any profit. It’s just an act of kindness.

 

I told my UC person.

 

He said I had to put the £1,000 down as a profit. Ok. Fair enough. That makes sense.

 

I said, and when I pay it back it would count as a cost? So, in effect, become ‘neutral’ or balanced at £0. He said no.

 

What?

 

So, it’s a profit. But when the business makes £1,000 and I give the money back to the person – it’s not a business expense?

 

That would mean – when I make the 1k and give it back… The business will have made 1k in the UC eyes, but I had to repay the loan – so as it would look like I made 1k, I would lose 1k of UC. So – would then be broke, the business would be bankrupt – or I would be homeless.

 

I just don’t understand this. Or rather – it didn’t make sense. It felt like the UC person has got it wrong. But then he should know the correct application of this as he deals with UC / self-employed people all the time.

 

If anyone knows what the correct method for counting a loan/repayment [even if it is just to confirm the UC person's explanation] or better still, if anyone knows where this is written up so I can read it for myself.

 

As it doesn’t make sense to me, and I am rather worried that I have no possibility of starting up the business under these rules now.

 

Thanks for any help.

 

 

I hope my explanation of the issue made sense. UC guy says a 1k loan into the company would count as me making 1k that month. But when I repay the loan – it wouldn’t count as a 1k loss. So to the UC it would count as me still ‘up’ 1k for the loan.

HillStreetBlues

There will be people on there that will tell you the regs and have full knowledge of UC.

I haven't got that kind of knowledge but if it's anything like accounting it's capital not profit.
I see it as the businesses has borrowed £1,000  and needs to be paid back when able to.
EDIT
The more I think about it the less sense it makes being classed as income or profit.

james72

HillStreetBlues said:

There will be people on there that will tell you the regs and have full knowledge of UC.

I haven't got that kind of knowledge but if it's anything like accounting it's capital not profit.
I see it as the businesses has borrowed £1,000  and needs to be paid back when able to.

Thanks. I'm not accountancy minded - so not quite sure what you mean.

I think you mean the biz has borrowed £1,000 [so counts as a profit]

And then when it gets paid back it... err... not sure what you suggest.

I remember when I questioned the chap [it was more than a month ago] - I said it didn't make sense. He just said people lending you money is a nice thing. That was in response to why it wouldn't count as a 'loss' when I give it back. I think this is [even if the chap has confused it with another rule] some sort of Friend/Family thing. The money they give... maybe in the eyes of UC as they are friends and family - it doesn't count when you give it back. As them giving it to you - was them 'being nice'?

Hmm.

Maybe.

I should have just counted it as profit and then as loss - and not been honest. As if this is the correct rule - I really messed the business up with this. 

Not sure [under these rules] the actions of friends/family can been seen as being nice... as it costs the claimant a lot of money. 

Thanks again for your help

HillStreetBlues

Sorry I will try to explain better

Biz  has £0 cash so no assets and no liabilities and there is no profit
Biz has £1000 cash but  owes £1000, so £1000 asset (the cash)  £1000 liability (the debt)  and no profit.

Nothing has changed with the Biz there is still no profit,   just the asset and liabilities have changed. 

HillStreetBlues

Another way of thinking about it is if you go to the bank with £0 balance and take out £1000  that isn't profit because there is an opposite transaction your account is now in £1000 debt.

james72

HillStreetBlues said:

Sorry I will try to explain better

Biz  has £0 cash so no assets and no liabilities and there is no profit
Biz has £1000 cash but  owes £1000, so £1000 asset (the cash)  £1000 liability (the debt)  and no profit.

Nothing has changed with the Biz there is still no profit,   just the asset and liabilities have changed. 

Thanks

Yes - that's what I thought it would be like

In fact from my original post:

"I said, and when I pay it back it would count as a cost? So, in effect, become ‘neutral’ or balanced at £0. He said no."

By pay it back [I wrote I, but should have written 'when the business pays the loan back']

What you are saying is exactly how I thought it would work. But the UC person - was adamant that is NOT the case.

Which makes no sense to me.

But he should be right - he does this day in and day out. I wanted to check here first. I expect their is some rule [that says the UC person is correct]. I just want to know what it is, and why. Maybe it even makes sense????

But as of now - I am scratching my head as to how it can be


Thanks again

HillStreetBlues

I do feel you have been told the wrong info by the person at UC.
There is no accounting method that would class it as profit, as it simply isn't, it's capital.
You might have to wait till the morning for someone well versed in UC to confirm this ( or correct me)

Spoonie_Turtle

I'm not particularly well versed but my instinct is it must be capital.   It's not payment for a service or goods,  it's (essentially) investment in the business to give you some capital to use for costs.

But as HSB says, others here are much more knowledgeable and will be able to confirm or correct, explain the rules - and no doubt point you to relevant guidance for you to educate your work coach!  You'd think they should know what they're on about but training and knowledge seem to be sorely lacking for many. 

seatbeltnoob

I got a bounceback loan and I enquired about this at the time and it was reported and they did not count it as income.

It's utterly stupid to count loan as an income. It's even more stupid to not treat it consistently.

If receiving a loan is income, then loan repayments should be allowable expenses.

I tried searching quickly but can't find the information to quote you. but on UCD5 page 10, under business income it lists example of what counts as income and loans (of any type) are not on there.

seatbeltnoob

The people on jobcentre just dont have a clue. It's complicated and the jobcentre self employment team are not financially numerate and have never been self employed themselves. Half the time they hear bits of the rules and just guess the other half. If they give you completely the wrong information and you catch them on it. they never apoalgise and admit they gave out false information earlier.

The most I ever got was "from your point of view you're right, from my point of view I'm right"

The loan you've received won't even be reported on the monthly statement of earnings and expenses. It's not any actual receipt as defined in legislation. You dont report it as income and when you repay the loan you don't report the capital repayment as expense either.

https://revenuebenefits.org.uk/universal-credit/guidance/entitlement-to-uc/self-employment/calculating-income-from-self-employment/

I realise this isn't official publication by DWP and is reinterpreted information, but that website is credible. the legislation.gov.uk doesn't show up well on google.

It should be noted that capital receipts do not form part of the actual receipts of the business. For example, funds introduced by the owner of the business in order to finance the business or loan capital borrowed from third parties for financing purposes should not be counted as actual receipts.

huckster

The money from friend is gifted capital to you for your business. Nothing to do with income and expenses reporting on UC claim.

Income is purely money you generate from sales or payment for work you completed.

Expenses are those allowed related to the self employed work you have completed during the month.

Income minus expenses is your net income. Out of your net income, you would pay your friend back, but again it is up to you how you pay your friend back, as you are taking money out of your business accounts to repay a loan.

UC reporting is purely about income and expenses derived from self employed activities.  


https://www.legislation.gov.uk/uksi/2013/376/regulation/57