Universal Credit Self Employed loan question

tomtom256

A loan is not income, it's capital and disregaded under section 10, I think it is of UC regs.

You can only declare upto £41 pounds I think it is, for interest on any financial products the business has, per assessment period.

calcotti

You’ve had replies based on what someone ‘feels’ is appropriate. That isn’t helpful, what matters is what the rules say and they aren't always logical.

This is slightly long winded reply but it emphasises that guidance is poorly worded and i can see why confusion could arise. (however there is definitive conclusion at the end).

The easily located detailed guidance is here
https://www.gov.uk/government/publications/universal-credit-and-self-employment-quick-guide/how-to-report-your-earnings-from-self-employment
You are allowed to claim as an expense interest on a business loan up to a maximum of £41/month. That limit encompasses loan interest, accounting, legal insurance and bank charges. It’s highly restrictive in my opinion and is unreasonably low. However the question of loan interest is not relevant in your case as you have an interest free loan.

The guidance is clear that you cannot claim as an expense capital repayments on a loan.

Unfortunately I can’t see anything in the guidance that states whether a loan should be treated as income or capital. 

The guidance first says:

“You’ll need to keep a record of and report the payments received into and paid out of your business each assessment period. This includes: the total amount your business received…”. and further on

“Your earnings from self-employment are calculated as the total amount your business received in…”. and again

“You must report all money received in by the business.”. and

“You have to report the total amount of of all payments received into the business”, and

“You must report all payments you actually received during your monthly assessment period, regardless of when it is earned”.

All the above could be read to imply that loans received could be treated as income even the list of what could be included as income doesn’t mention loans.

Then looked at this document which is internal DWP guidance:

https://data.parliament.uk/DepositedPapers/Files/DEP2022-0860/132._Self-employed_earnings_V7.0.pdf

This says “The claimant is required to report all payments actually received by the business, not money owed to the business, in the assessment period, including:..”. Loans are not included in the list of what is included but could still be read to be included in “all payments actually received”. 

Both of the above pieces of guidance could be read to support what you were told, that loans should be treated as income.

However if we then look at Advice for Decision Making which is the comprehensive official DWP guidance for Decision Makers the matter is suddenly made clear.

https://assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/file/1128000/admh4.pdf

Capital receipts
H4190 Capital receipts do not form part of the actual receipts of the business. For example, 
1. funds introduced by the owner of the business for the purposes of financing the business and 
2. loan capital borrowed from third parties for financing purposes. 

Completely unambiguous - a loan should not be declared as income.

If you have already reported the loan as income I suggest you post a message in your journal saying that you wish to amend your report for the relevant assessment period. Explain that you included as income the £100 loan because atet is what you were advised to do by the your work coach. Then say that you have now read Advice for Decision Making which includes paragraph H4190 which expressly states that loans should not be included as receipts. Therefore your income for taht assessment period should be £1000 less than previously reported. The error was only made because of the advice you received and ask that UC recalculate your Uc entitlement for that assessment period.

If you haven't reported the loan yet simply send a reply to your work coach quoting paragraph H4190 to them.

It would obviously be helpful if the earlier two pieces of guidance are referred to were clear on this point. I've sent some feedback on the first piece of guidance.

james72

"calcotti" thanks ever so much

Thanks everyone else as well.

calcotti that is perfect - I have printed it off, as I have a meeting with my work coach tomorrow. I will bring this up with him [in a nice way] - and at least now it's not a hunch that what he was saying didn't make sense...

Phew. That's great news.

Thanks again everyone for your time in helping me.

I will come back and add to this - if the work coach sticks to his interpretation. Which I am sure is a possibility - nobody likes to be wrong [hence my wanting to bring this up in a nice way]. Hopefully it goes smoothly

It does make you wonder how many people the WC might have given the wrong advice to.

Thanks again  

calcotti

james72 said:

It does make you wonder how many people the WC might have given the wrong advice to.

Lots of incorrect advice is given out by DWP. Under trained and over worked.

NedS

calcotti said:

james72 said:

It does make you wonder how many people the WC might have given the wrong advice to.

Lots of incorrect advice is given out by DWP. Under trained and over worked.

Self-employment is an absolute minefield and the training given is minimal. DWP place the responsibility on the claimant to understand the legislation and ensure they declare correctly (not dissimilarly to HMRC who place responsibility on UK residents to ensure they pay the right amount of tax). DWP's job is to administer and pay the benefit based on the claimants declaration, much as HMRC's job is to collect tax. Neither are advice services. Many WC's will try to go the extra mile to help claimants, but unfortunately many are ill equipped or trained to do so.

HillStreetBlues

NedS said:

Self-employment is an absolute minefield and the training given is minimal. DWP place the responsibility on the claimant to understand the legislation and ensure they declare correctly (not dissimilarly to HMRC who place responsibility on UK residents to ensure they pay the right amount of tax). DWP's job is to administer and pay the benefit based on the claimants declaration, much as HMRC's job is to collect tax. Neither are advice services. Many WC's will try to go the extra mile to help claimants, but unfortunately many are ill equipped or trained to do so.

One of the reasons to take advise.
If what you are told seems illogical then challenge it, even if you can't pinpoint the precise legislation.  

Malecaah007

james72 said:

"calcotti" thanks ever so much

Thanks everyone else as well.

calcotti that is perfect - I have printed it off, as I have a meeting with my work coach tomorrow. I will bring this up with him [in a nice way] - and at least now it's not a hunch that what he was saying didn't make sense...

Phew. That's great news.

Thanks again everyone for your time in helping me.

I will come back and add to this - if the work coach sticks to his interpretation. Which I am sure is a possibility - nobody likes to be wrong [hence my wanting to bring this up in a nice way]. Hopefully it goes smoothly

It does make you wonder how many people the WC might have given the wrong advice to.

Thanks again  

james72 - what was the outcome of your review relating to the above?  Thank you

poppy12345

Malecaah007 said:

james72 said:

"calcotti" thanks ever so much

Thanks everyone else as well.

calcotti that is perfect - I have printed it off, as I have a meeting with my work coach tomorrow. I will bring this up with him [in a nice way] - and at least now it's not a hunch that what he was saying didn't make sense...

Phew. That's great news.

Thanks again everyone for your time in helping me.

I will come back and add to this - if the work coach sticks to his interpretation. Which I am sure is a possibility - nobody likes to be wrong [hence my wanting to bring this up in a nice way]. Hopefully it goes smoothly

It does make you wonder how many people the WC might have given the wrong advice to.

Thanks again  

james72 - what was the outcome of your review relating to the above?  Thank you

This thread is more than 1 year old and the member hasn’t been active since Feb 2023 so you may not get a reply. 

christhefatcat

james72 said:

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.

If a loan is added as income. I am not sure it is. The loan would be at 55p in the £1 deduction off Universal Credit. So if in the first 12 months (I believe it is different after start up period) this figure would be deducted from your UC for that month. If the result is larger than your monthly UC you will receive ZER0, then what is left is carried forward into the next month and deducted from your UC again.
This can also work in your favour for expenses, buy products for your business etc, this has positive impact, if any remaining carries forward into the next months payment. And no in both cases you don't have to add it again. Keep the receipts.
The best solution to this is spend some or all on business expenses, products etc. This goes in to the expenses section. Balance it out in your favour. Play by there rules.