UC - earnings below minimum income floor for a one off month.

24

Comments

  • a ltd company director - their businesses is an analogous self employed business. corporation tax on the business is similar to income tax on the individual so for UC it should be an allowable expense.

    It's worth noting that the actual legislation doesn't mention ltd co directors at all. Only company owners/share of their ownership. So being a company director should be irrelevant, it's shareholding that's of significance. Obviously in most cases the director(s) of a small business are also share holders. The ADM seems to (incorrectly imo) equate director to shareholder, when it's not a given. DMG 27011 is pretty clear - "the profits do not belong to the directors".

    The only grey area seems to be what they actually mean by 'analogous to a sale trader'. DWP seems to be suggesting that a director should be treated as self employed just because they are in a director? If the director has no shareholding then should they be treated as self employed when their share of the profits is always going to be zero? Why should they need to submit company income and expenses each moth if they're not receiving any of the profits? 
  • Yamor
    Yamor Posts: 400 Forumite
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    It's worth noting that the actual legislation doesn't mention ltd co directors at all. Only company owners/share of their ownership. So being a company director should be irrelevant, it's shareholding that's of significance. Obviously in most cases the director(s) of a small business are also share holders. The ADM seems to (incorrectly imo) equate director to shareholder, when it's not a given. DMG 27011 is pretty clear - "the profits do not belong to the directors".

    The only grey area seems to be what they actually mean by 'analogous to a sale trader'. DWP seems to be suggesting that a director should be treated as self employed just because they are in a director? If the director has no shareholding then should they be treated as self employed when their share of the profits is always going to be zero? Why should they need to submit company income and expenses each moth if they're not receiving any of the profits? 
    This is a very good point, and is reflective of DWP's complete ignorance of company law.

    Some parts of the guidance are better than others. For example, Chapter H1 is not so bad. But many sections of DWP guidance simply talk about "company directors", with no further qualifications.

    The only wording actually used in the legislation is "[w]here a person stands in a position analogous to that of a sole owner or partner in relation to a company […]". The case law is quite clear that this is decided by virtue of shareholding, not being a director.

    I wouldn't say there is a grey area about a director with no shares. They are certainly not to be treated as self-employed.

    To be fair, the operational guidance does state that if a claimant is a company director, then they must attend a gateway interview to determine whether they are in a position like a sole trader etc, and have significant influence.
    I would hope that a company director who has no shares would easily be found not to be in a position like a sole trader or partner, and not to have significant influence.
    See here: https://data.parliament.uk/DepositedPapers/Files/DEP2023-0791/042._Companies_and_directors_-_gainful_self-employment_V4.0.pdf

    It is worth looking at R(IS) 8/92 and R(IS) 13/93. See in particular para. 6 of R(IS) 13/93, which discusses the shareholdings when looking at the sole owner/partner test, and only mentions being a director when discussing whether the claimant was actually working for the company.
  • seatbeltnoob
    seatbeltnoob Posts: 1,309 Forumite
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    edited 18 October 2023 at 3:11PM
    please ignore the company director remark. I've just used one term for another because in my case I am the sole director and sole shareholder of the business. I should be careful with this because the two mean different things.

    But you both are correct, under UC it's down to the shareholding, not directorship. If you are the sole shareholder, it's simple. If you are 50% shareholder. Youd compute incomes and expenses at the 50% of the value. (business takes £6000 revenue, a 50% shareholder UC claimant would report £3000 in revenue for their incomes and expenses)
  • seatbeltnoob
    seatbeltnoob Posts: 1,309 Forumite
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    edited 6 November 2023 at 5:04PM
    Regarding corporation tax as an expense for self employed universal credit.

    I heard back from the work coach


    Corporate tax is an allowable expense under DWP guidance and you can report it on your to-do "report income and expenses" at the month you made the payments.



  • Yamor
    Yamor Posts: 400 Forumite
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    Regarding corporation tax as an expense for self employed universal credit.

    I heard back from the work coach


    Corporate tax is an allowable expense under DWP guidance and you can report it on your to-do "report income and expenses" at the month you made the payments.



    That's interesting. I'd love to see the guidance they refer to!
  • tomtom256
    tomtom256 Posts: 2,216 Forumite
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    Yamor said:
    That's interesting. I'd love to see the guidance they refer to!

    You can find the basic guidance on gov.uk.
    All of the advice to decision makers is also on there.
  • Yamor
    Yamor Posts: 400 Forumite
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    tomtom256 said:
    Yamor said:
    That's interesting. I'd love to see the guidance they refer to!

    You can find the basic guidance on gov.uk.
    All of the advice to decision makers is also on there.
    I have gone through the basic guidance, the ADM and the guidance published in the House of Commons library. None discuss corporation tax.
  • Corporation tax is considered as a business expense, just as vat, PAYE salaries, employers NICs, employer pension contributions are for UC profit purposes. So they're deducted at the point the tax liability is settled with HMRC. Which is bad enough with VAT, but bonkers with corporation tax as it's paid 9 months after the trading year end. So if your business makes a juicy big profit in any particular month, UC will consider all of that as your personal income for that month (even though 20% of it is going to go to the tax man). It's only when the business later pays it's corporation tax bill that you can deduct it. So all the profit in November 23 is counted as yours, potentially for as long as 21 months - July 2025! And if you have a big CT bill to pay in July 2025, it could well make the business profits negative for that month and then you get stitched up by the minimum income floor.
  • Yamor
    Yamor Posts: 400 Forumite
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    edited 6 November 2023 at 11:20PM
    Right, I understand what DWP have said.

    But I am surprised they allow this. After all, Income Tax on self-employed trading profits is not allowable as a business expense (but is separately allowed as a deduction for UC purposes).

    VAT, PAYE, E'er NICs and pension contributions are understandable - they all are clearly business expenses, but tax on profits isn't really...

    A few points on the issues you've raised:

    1. For VAT, you do have the choice to report everything net of VAT, which would take away this issue. Although it does make the cash accounting each month more difficult.

    2. For Corporation Tax, there is nothing stopping you making an advance payment (or multiple advance payments) to HMRC. In fact, DWP have explicitly said that this could be done for Income Tax and NI.

    3. If the MIF is going to affect you one month because you pay your Corporation Tax bill (or for any other reason), you should make sure to pay yourself a salary through PAYE that month equal to your MIF amount. You can do this even if you do not actually withdraw the money from the company (it would just increase your loan account).
  • seatbeltnoob
    seatbeltnoob Posts: 1,309 Forumite
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    edited 6 November 2023 at 11:51PM
    if you have big balances to pay for VAT and corporation tax which can swing your UC determined profits up and down massively. Perhaps you can sculpt this by paying as you go?

    I'm paying my VAT monthly, I do the books and the VAT accrued for the month gets bank transferred to hmrc. that way I dont have massive quarterly swings in the profits as determined by UC.


    I dont need to do this yet for corporation tax. because I have massive accrued losses from prior years that i will be drawing down now.

    I read somewhere that hmrc pays you interest on the corporation tax that you pay early.

    I dont think paying your VAT/CT voluntarily as you go would be an issue for UC because you are in fact settling a balance that you owe.

    If I owe £500 VAT for September and the Vat period is sep oct nov. I[m not goiing to be depriving myself of capital if I bank transferred £500 to HMRC account on 1st October, that is a debt I owe to hmrc.


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