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Universal credit for limited company director
Comments
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ElwoodBlues said:
It's highly likely from what you've said that there will be a considerable overpayment when they go back and recalculate on a self employed basis.
Thanks again to everyone's contributions.I am more or less resigned to the fact that suddenly I will find myself in a debt spiral which I cannot see a way out of to be honest. But as long it is a manageable amount, I will do my best to clear it asap - second/weekend job, whatever...What is worrying me even more now with this new development is that perhaps my company's capital will be counted towards my household's => our capital will be calculated to be above the UC's threshold => everything we have received as UC would have to be repaid, not only the excess profit I made as "self-employed".Is this correct?
AFAIK even if your capital is 1 penny above the threshold you are not entitled to anything, regardless of the fact that your capital wouldn't be anywhere near if you weren't receiving UC in the first place. I still cannot wrap my head around that but it seems to be the case. Is this correct too? Just to illustrate what I mean- consider that for a period of 12 months your capital has been £16001 and you were receiving 1000 a month of UC. Suddenly it turns out you owe 12000, your capital is still £16001.And it's not like this money is hidden in the basement. Well, it could well be, but in my landlord's one, definitely not mine.
What next - bankruptcy, homelessness, food banks?...It looks it makes far more sense to get the money out of your business by paying yourself an annual dividend or whetever and then spend the cash on a Caribbean holiday, lease a bloody 4x4, gamble it or just bloody burn it . Then you will be considered worth government help. But trying to be frugal and save enough to invest in your business - forget about it.Please, correct me if I am wrong in any of the above and, again, any advice would be greatly appreciated.
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Galfonso said:ElwoodBlues said:
It's highly likely from what you've said that there will be a considerable overpayment when they go back and recalculate on a self employed basis.
Thanks again to everyone's contributions.I am more or less resigned to the fact that suddenly I will find myself in a debt spiral which I cannot see a way out of to be honest. But as long it is a manageable amount, I will do my best to clear it asap - second/weekend job, whatever...What is worrying me even more now with this new development is that perhaps my company's capital will be counted towards my household's => our capital will be calculated to be above the UC's threshold => everything we have received as UC would have to be repaid, not only the excess profit I made as "self-employed".Is this correct?
AFAIK even if your capital is 1 penny above the threshold you are not entitled to anything, regardless of the fact that your capital wouldn't be anywhere near if you weren't receiving UC in the first place. I still cannot wrap my head around that but it seems to be the case. Is this correct too? Just to illustrate what I mean- consider that for a period of 12 months your capital has been £16001 and you were receiving 1000 a month of UC. Suddenly it turns out you owe 12000, your capital is still £16001.And it's not like this money is hidden in the basement. Well, it could well be, but in my landlord's one, definitely not mine.
What next - bankruptcy, homelessness, food banks?...It looks it makes far more sense to get the money out of your business by paying yourself an annual dividend or whetever and then spend the cash on a Caribbean holiday, lease a bloody 4x4, gamble it or just bloody burn it . Then you will be considered worth government help. But trying to be frugal and save enough to invest in your business - forget about it.Please, correct me if I am wrong in any of the above and, again, any advice would be greatly appreciated.https://www.gov.uk/government/publications/universal-credit-and-self-employment-quick-guide/universal-credit-and-self-employment-quick-guide
States that:Business assets
If you are gainfully self-employed your business assets will not be taken into account when you make a Universal Credit claim, nor when working out how much Universal Credit you receive. If you are not closing your business, you will not need to sell your business assets to apply for Universal Credit.
Business assets include things like machinery, premises and cash held in your business account.
So you should be ok from a capital perspective, business cash isn't counted as personal capital. I couldn't imagine DWP being happy to let people transfer all their personal savings into the business account if that then makes it disregarded (as suggested above). So perhaps there is some mechanism/detailed rules to prevent that?
Or maybe because of the way they calculate your business profit from income and expenses, it negates the cash in the business from being treated as personal capital? If ever you tried to withdraw it they would then consider that withdrawal as personal income? And if you transferred the other way, into the business account, they'd consider that as a business income?
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Galfonso said:All this simply does not make any sense to me. What happens if I don't make any profit for a month or two and cannot even afford to pay myself a salary? I was planning to buy a van for example (which I guess I will have to forget about now). How do you account for something like this? What if the combined capital of ourselves and the business is found to have been be above the threshold for HB for a period of time? What if I actually made a loss for a particular reporting period? So many questions... I don't even know where to start from.I am quite desperate to be honest and any advice and clarification will be very, very welcome.
It sounds like you started claiming UC 6 months ago? So you should be exempt from the MIF for the previous 6 months, and the next 6 months. After that you NEED to be earning at least NMW to not be worse off.
You also carry forward losses from the previous month to the next, so if your business profit is a lot higher the next month, the previous months loss should be offset from it. But they also carry forward surplus profits if you have a really good month, and show profit above £2500 over the amount your UC is reduced to zero, they carry that amount forward and add it on to your next months profit/loss. Note that the £2500 buffer was a (rather generous, by UC standards) temporary change implemented when covid happened. I think it was only £300 before that, and presumably at some point they will decrease it again.
So basically if you earn less than min wage in a month, you'll get less UC, if you earn more than your benefits entitlement allows, you'll also get less UC in future months. The whole thing is a balancing act, where you'll be wanting to time your business income and expenses to try and keep them almost the same every month.
The other thing to consider is that pension contributions (both employer and employee) are a deductible expense, so it makes sense to time your pension contributions to smooth your monthly profits...
If you buy a van within the company, that is classed as an approved asset purchase, and accounted for as a business expense (so you'll probably show a massive loss that month, but the MIF will still have you). You can save up to buy the van from your business profits, but UC will have already considered those profits in each months calculation. UC works in arrears basically.
Some more general self employed explanation here: https://www.gov.uk/government/publications/universal-credit-and-self-employment-quick-guide/how-to-report-your-earnings-from-self-employment1 -
ElwoodBlues said:
https://www.gov.uk/government/publications/universal-credit-and-self-employment-quick-guide/universal-credit-and-self-employment-quick-guide
States that:Business assets
If you are gainfully self-employed your business assets will not be taken into account when you make a Universal Credit claim, nor when working out how much Universal Credit you receive. If you are not closing your business, you will not need to sell your business assets to apply for Universal Credit.
Business assets include things like machinery, premises and cash held in your business account.
So you should be ok from a capital perspective, business cash isn't counted as personal capital. I couldn't imagine DWP being happy to let people transfer all their personal savings into the business account if that then makes it disregarded (as suggested above). So perhaps there is some mechanism/detailed rules to prevent that?
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NedS said:. It is not intended to allow cash to be held within the business rather than taking it as profit or earnings.Information I post is for England unless otherwise stated. Some rules may be different in other parts of UK.1
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NedS said:ElwoodBlues said:
Business assets include things like machinery, premises and cash held in your business account.
Hm, how does anyone prove what the business owner's intentions are? Moreover, the link provided by ElwwodBlues (sorry, cannot post links) doesn't mention anything like that. It would probably be valid in some extreme cases? If so, I need not worry as I don't have such a significant amount in my business account - I just want to make sure I can continue paying myself a salary for a few months if thing go bad and, at some point in the future, buy a van.However, I would like to be prepared for any sort of eventuality - I might be wrong but I have the feeling that the DWP will do their best to disqualify you.If, for example, my company's cash is added to our household's capital, we would be considered rich enough and not needing any UC support. Of course, it would also mean I will never be able to purchase a van and most likely to pay myself a salary if thing get a bit quiet. That's why this particular issue is worrying me so much.0 -
NedS said:ElwoodBlues said:
https://www.gov.uk/government/publications/universal-credit-and-self-employment-quick-guide/universal-credit-and-self-employment-quick-guide
States that:Business assets
If you are gainfully self-employed your business assets will not be taken into account when you make a Universal Credit claim, nor when working out how much Universal Credit you receive. If you are not closing your business, you will not need to sell your business assets to apply for Universal Credit.
Business assets include things like machinery, premises and cash held in your business account.
So you should be ok from a capital perspective, business cash isn't counted as personal capital. I couldn't imagine DWP being happy to let people transfer all their personal savings into the business account if that then makes it disregarded (as suggested above). So perhaps there is some mechanism/detailed rules to prevent that?
Limited companies pay their corporation tax annually. They need to keep cash aside throughout the year to pay it. And it's very difficult to know or predict what the CT bill is going to be. That's why we engage professional accountants to prepare our annual accounts once a year, because it's a complicated matter. Until the point the accountant has completed their work, we have almost no idea what our CT liability will be. Even the smallest business couldn't reliably estimate to within £10k. So if my company accumulates cash through the year to cover the CT, than a) UC will consider that money as part of my personal income each and every month (which it patently isn't), and b) if I've been over cautious and have put aside more cash than the CT bill, then UC will consider that surplus as my personal capital.
So, how does a UC Decision Maker decide what amount of cash is essential for ongoing business operations? How are they qualified to calculate that figure. There is no industry standard formula for this, there is no standard accepted cash to turnover ratio that's usable as a rule of thumb. The reason being that this is simply impossible to do. Even the best accountants or financial planners couldn't do this, especially for a small, dynamic company (and an owner of a large company isn't very likely to be claiming UC).
Does anyone have link to where in the UC handbook/legislation this is covered please?
This is all especially pertinent since UC also limits the amount of allowable finance costs expenditure that a business can claim to £41 per month. So they don't want your business to to cash rich, but at the same time if you keep it low and your company needs to borrow money then you only have a £41 a month of allowable interest.
Actually, the wording on the gov.uk website states that £41 is the maximum permitted expense to cover all of: interest on all business loans, accounting, legal, insurance and bank charges.
My business's accountant's bill for last year was £600 (just a one off charge for preparing the annual accounts, nothing extravagant). But that alone works out at £50 a month, so I've already blown the £41 a month. Bank charges - mine are minimal, but most will need to take card payments (incurring commission fees), in addition to regular bank fees. My insurance is £300 a year, and that's just the bare minimum, public liability cover. It is clearly impossible to operate a limited company and not incur expenses way above £41 a month for these essential things. £100 a month would still be tight, even for the smallest trading company.
And another thing, if a director/business owner has put money into the business though the director's loan account, then it looks like UC treat that as a 'right to capital' and add that to your personal capital. (ADM Chapter H1, H1133).
Pretty much every single company will have had a cash injection from it's owners at startup. Many never get it back, or it takes years to get repaid. I put in over £30k of my own money (my entire life savings) when I bought my business 20 years ago. It's taken until the last couple of years to get repaid that money and reduce the director's loan account. But it's usual practice to keep a director's loan account in negative balance (i.e. the company owes the director money), typically a few thousand, because the tax implications of going the other way are pretty nasty.
Most directors are going to have their DL account balance included in their personal capital, so that and any spare cash (or other non essential capital) in the business is going to very rapidly push them towards the 16k max capital limit for UC eligibility, and that's before any personal cash savings or personal capital are taken into consideration.
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If a business is over a year is generating enough profit, then close UC claim down and don't rely on the benefit support.
This must be the aim of Government, that they don't really want directors of profitable companies being in receipt of UC.
The comments I post are personal opinion. Always refer to official information sources before relying on internet forums. If you have a problem with any organisation, enter into their official complaints process at the earliest opportunity, as sometimes complaints have to be started within a certain time frame.7 -
Cash in the business is essentially ignored, as it should have already been treated as income in the AP it was received.Any business capital is then ignored under Reg 10 I think it is, as the business can do what they want with it or a director can withdraw it as a dividend etc.
It was the same with things like the bounce back loans that could be claimed during covid, they where ignored as both income and capital for UC purposes.0 -
tomtom256 said:Cash in the business is essentially ignored, as it should have already been treated as income in the AP it was received.Agreed, as per my previous reply.
Because UC is calculated on the income/expenditure on a cash basis that means that the company director thereafter has complete discretion over how to use the retained cash.Information I post is for England unless otherwise stated. Some rules may be different in other parts of UK.1
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