Universal credit for limited company director

ElwoodBlues

huckster said:

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.

You can be profitable and still fully entitled to benefits. According to Entitled To calculator I would receive some UC up to an annual income of £32k (if I was renting and claiming housing benefit I'd get UC up to an income of 44k!). I currently draw an income of about £12,500 and the business has only shown a trivial profit on top of that for the last few years. The business is profitable, and has some cash reserves, but no where near the point of providing me with 32k income annually (hopefully when my kids are older and I can work more hours that'll improve again).

tomtom256 said:

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.

That was my understanding of it, but Ned S seemed to be implying that disregarding cash in the business is discretionary, and that UC decision makers somehow judge/evaluate what is 'necessary' cash? I could understand that for someone hiding 100k in their company accounts, but I'm trying to work out what DWP deem is reasonable and necessary.

 NedS said:

WRT cash held within the business, this can be disregarded so long as it is essential to the ongoing operation of the business. For example, if cash is needed to buy future stock. It is not intended to allow cash to be held within the business rather than taking it as profit or earnings. It is certainly not intended to allow personal assets to be disregarded.

ElwoodBlues

tomtom256 said:

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.

My UC claim hasn't started yet, there will be cash in the business account when the first AP commences. Is that then treated as income in the first AP? Or do they disregard it as simply opening balance?

calcotti

ElwoodBlues said:

tomtom256 said:

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.

My UC claim hasn't started yet, there will be cash in the business account when the first AP commences. Is that then treated as income in the first AP? Or do they disregard it as simply opening balance?

It should be disregarded.

https://assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/file/1136904/admh2.pdf#page6

H2021 Assets which are used wholly or mainly for the purposes of a trade, profession or vocation which the person is carrying on, are disregarded indefinitely.

H2022 Business assets include standard items such as machinery, vehicles, fixtures and cash held in the bank (including money held following the sale of assets). 

ElwoodBlues said:..Ned S seemed to be implying that disregarding cash in the business is discretionary,

I don’t agree with Ned’s take on that.

NedS

calcotti said:

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. 

That's fair enough where cash is built up during an ongoing claim, but consider the scenario where a company director makes a new claim for UC, they have a large amount of cash sheltered within the company that they have chosen not to withdraw as either income or dividends (maybe they do not wish to pay the tax on it), and the company is not currently making a profit. Is it right that person should receive tax payers support when they have a large amount in cash assets available but do not wish to draw upon them right now?

There can be any number of reasons a business may wish to leave cash assets held within a business, but for UC purposes this cash should be essential for the continued operation of the business for it to be disregarded indefinitely. An example of that maybe where cash is required to purchase new stock and turnover is such that the claimant may regularly hold more than £16k in cash assets within the business which would be perfectly reasonable to fully disregard.

NedS

calcotti said:

ElwoodBlues said:

tomtom256 said:

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.

My UC claim hasn't started yet, there will be cash in the business account when the first AP commences. Is that then treated as income in the first AP? Or do they disregard it as simply opening balance?

It should be disregarded.

https://assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/file/1136904/admh2.pdf#page6

H2021 Assets which are used wholly or mainly for the purposes of a trade, profession or vocation which the person is carrying on, are disregarded indefinitely.

H2022 Business assets include standard items such as machinery, vehicles, fixtures and cash held in the bank (including money held following the sale of assets). 

ElwoodBlues said:..Ned S seemed to be implying that disregarding cash in the business is discretionary,

I don’t agree with Ned’s take on that.

Exactly that - Assets which are used wholly or mainly for the purposes of a trade, profession or vocation which the person is carrying on, are disregarded indefinitely.

If the cash is not used wholly or mainly for the purposes of a trade, profession or vocation which the person is carrying on, it cannot be disregarded.

NedS

ElwoodBlues said:

That was my understanding of it, but Ned S seemed to be implying that disregarding cash in the business is discretionary, and that UC decision makers somehow judge/evaluate what is 'necessary' cash? I could understand that for someone hiding 100k in their company accounts, but I'm trying to work out what DWP deem is reasonable and necessary.

 NedS said:

WRT cash held within the business, this can be disregarded so long as it is essential to the ongoing operation of the business. For example, if cash is needed to buy future stock. It is not intended to allow cash to be held within the business rather than taking it as profit or earnings. It is certainly not intended to allow personal assets to be disregarded.

Yes, if you are not trying to hide personal assets within the business, and they are business assets wholly or mainly for the purposes of a trade, profession or vocation which the person is carrying on, then you have nothing to be concerned about and they would be fully disregarded.

ElwoodBlues

NedS said:

 NedS said:

WRT cash held within the business, this can be disregarded so long as it is essential to the ongoing operation of the business. For example, if cash is needed to buy future stock. It is not intended to allow cash to be held within the business rather than taking it as profit or earnings. It is certainly not intended to allow personal assets to be disregarded.

Yes, if you are not trying to hide personal assets within the business, and they are business assets wholly or mainly for the purposes of a trade, profession or vocation which the person is carrying on, then you have nothing to be concerned about and they would be fully disregarded.

I'm not trying to do that, but how do UC decision makers decide if someone is? Can't find anything in the handbook about it. I can't see how it's possible for either side to prove that either way, it's subjective at best. So it appears it'll just come down to the decision maker's opinion? And unless DWP publish guidelines/rules on how much cash they consider essential, then how does anyone know where they stand with it?

NedS

ElwoodBlues said:

NedS said:

 NedS said:

WRT cash held within the business, this can be disregarded so long as it is essential to the ongoing operation of the business. For example, if cash is needed to buy future stock. It is not intended to allow cash to be held within the business rather than taking it as profit or earnings. It is certainly not intended to allow personal assets to be disregarded.

Yes, if you are not trying to hide personal assets within the business, and they are business assets wholly or mainly for the purposes of a trade, profession or vocation which the person is carrying on, then you have nothing to be concerned about and they would be fully disregarded.

I'm not trying to do that, but how do UC decision makers decide if someone is? Can't find anything in the handbook about it. I can't see how it's possible for either side to prove that either way, it's subjective at best. So it appears it'll just come down to the decision maker's opinion? And unless DWP publish guidelines/rules on how much cash they consider essential, then how does anyone know where they stand with it?

It is the claimant's responsibility to provide evidence that the assets within the business are wholly or mainly for the purposes of a trade, profession or vocation which the person is carrying on. It's not anything special - if there are large amounts of cash on the books and the claimant cannot provide a reasonable explanation of why that is the case, then the Self Employment Work Coach is likely to immediately be suspicious. I cannot actually think of a case where assets have not been fully disregarded, but really just wanted to make the point that it's not necessarily an automatic disregard - assets must be wholly or mainly for the purposes of a trade, profession or vocation which the person is carrying on.

ElwoodBlues

I've got a few more questions if anyone would be kind enough to offer guidance:

When does your first monthly assessment period run from, is it the the day you started your claim?

Do they look back at bank statements etc from before the claim starts?

Is it all done online, or do you have to have face to face meetings in a job centre?

I use my company credit card quite a lot for business purchases. When do those purchases get counted in the UC system - the day the card payment for the goods is made, or the day the credit card bill is paid from my business bank account?

Gov.uk website says: You must report your self-employed earnings on the last day of your monthly ‘assessment period’.
Do they really expect businesses to have their accounts fully up to date and complete to the very day? I could actually be really busy doing something else that day, like err, out working! I'm used to having 37 days to get my quarterly VAT figures together, 270 days to submit my annual accounts. Is the deadline to submit figures to DWP midnight on the last day of the AP? What happens if I miss that? Or a payment/receipt comes in last minute and gets missed, can it be tacked on to the following AP figures?

My company has a covid bounce back loan. Bank only provides annual statements for it, so I can't provide the monthly interest figures (to claim the expense) for up to 12 months later. How am I supposed to enter that in the AP expenses?

The ADM chapter 4 suggests that cash (capital) transfers to and from the company (directors loan transactions), aren't included in sales or expenses?

How do employer and employee pension contributions get factored in to the UC calculation? (I've read the legislation, but it made my brain start to melt! https://www.legislation.gov.uk/uksi/2013/376/regulation/57/2020-05-21) It appears as though employer contributions get taken off as a business expense? But for employee's pension contributions are deducted from the persons income figure, is the MIF applied before or after this deduction?

calcotti

ElwoodBlues said:

When does your first monthly assessment period run from, is it the the day you started your claim?

Yes.

ElwoodBlues said:

Do they look back at bank statements etc from before the claim starts?

I don't know.

ElwoodBlues said:

Is it all done online, or do you have to have face to face meetings in a job centre?

You will be expected to attend at least one meeting at the start of the claim.

ElwoodBlues said:

I use my company credit card quite a lot for business purchases. When do those purchases get counted in the UC system - the day the card payment for the goods is made, or the day the credit card bill is paid from my business bank account?

I don't know.

ElwoodBlues said:

Gov.uk website says: You must report your self-employed earnings on the last day of your monthly ‘assessment period’.
Do they really expect businesses to have their accounts fully up to date and complete to the very day? 

You have to report on the last day otherwise your entitlement for that month cannot be worked out so you will not be paid.

ElwoodBlues said:

My company has a covid bounce back loan. Bank only provides annual statements for it, so I can't provide the monthly interest figures (to claim the expense) for up to 12 months later. How am I supposed to enter that in the AP expenses?

Am not clear - when do you pay the interest? (The total amount of interest you can claim each month is capped at £41/month see H4217.)

ElwoodBlues said:

How do employer and employee pension contributions get factored in to the UC calculation? (I've read the legislation, but it made my brain start to melt! https://www.legislation.gov.uk/uksi/2013/376/regulation/57/2020-05-21) It appears as though employer contributions get taken off as a business expense? But for employee's pension contributions are deducted from the persons income figure, is the MIF applied before or after this deduction?

I can't see guidance on that either!