Refused Job Seekers Allowance Due To Not Enough Class 1 NI Payments

sterling30

My Limited company, est. 2004, has always made a profit and done well, including the previous two tax years ending April 2021 and April 2022. But it has recently run into the ground, thanks to the Covid pandemic forcing closure of the majority of my client base. Earnings plummeted and I took the business offline about 6 months ago. Since that time I've been considering getting a full-time job and taking the old business down a new path. I have since run out of money and someone suggested to me to claim Job Seekers Allowance, which I've never done before. I made the claim and agreed to the option of backdating it up to the max of 3 months. I received a response, in the form of 4 letters in one postal delivery, much later than I expected (4 weeks), some being contradictory and confusing. I have edited to show the main points:  

LETTER 1:
We have looked at your backdated claim and decided you have satisfied the Labour market conditions for Jobseekers Allowance from 17 July to 16 October.
We have also decided you have not shown good cause for the delay in making your claim from 17 July to 16 October.

This means we cannot backdate your Jobseekers Allowance.

We will give you NI contribution credits for this period.

We cannot pay Jobseekers Allowance from 17 October. Because you have not paid or been credited with enough Class 1 NI contributions.
We have used the tax years ending April 2021 and April 2022 to assess your claim.

LETTER 2:

We have looked at your claim again following a recent change.

We have used tax years ending April 2021 and April 2022 to assess your claim.

We cannot pay you an allowance from 18 October, because:

- the Law says we cannot pay you.

If you want a full explanation of why your job seekers allowance has changed please get in touch with us.

LETTER 3:

We are writing to tell you that Jobseekers' Allowance can count as taxable income. For the period up to 17 October 2023 you received no Jobseekers Allowance.

LETTER 4

A P45 Job Seekers Allowance claim.

_________________

Incidentally, regarding LETTER 1 comment: "We have also decided you have not shown good cause for the delay in making your claim from 17 July to 16 October." ... Their question relating to this was 'what is your reason for backdating your claim?' I answered simply "I had never considered Job Seekers Allowance until someone suggested it to me". Instead of not seeing me as a sponger they instead saw that as a weak reason. I remember reading it saying 'put as much as possible and this could help your aplication'... but I didn't. Does it really all boil down to that? I didn't think I had to point out the obvious that I have run out of money and am desperate.

OK moving on... I spoke to my accountant who said the following:

"You could challenge back that your salary as a Director is below the national threshold for tax purposes and hence should show you are on low income. Maybe call them up and speak to someone?"

"Regardless of your situation or what year they use, the most tax efficient way for a Director to get paid is in 2 ways:

1. A salary up to the national insurance threshold through payroll as this is the amount you can take out of the business whilst paying 0% tax and 0% National insurance.

2. Any further money you take from the business is then taken as dividends of which tax is due but national insurance is not. 

This has been the case for many many years and one I would not think will change going forward. 

They are saying because we have put through the most tax efficient way of paying you as a Director and hence not paid national insurance, they are not allowing you to get the job seekers allowance which is very sneaky and frankly unfair. 

I don't know what to suggest to be completely honest as I haven't got involved with job seekers before. I can only suggest challenging them and explaining the situation to an actual person and see if there is anything you can do to push this through."

_________________________

I've been paying my taxes for over 30 years and this is the one time I am asking for help. Naturally I"m pretty disgusted by this. 

Before I make contact I thought I would reach out on this forum to see if anyone has any advice.

Is it possible to overturn this? If I can't, in the time between now and getting a desperate job, what can I do? 

My bank have inadvertendly paid this month's mortgage and energy bill and are on my back. I assumed Job Seekers would be granted and therefore go some way to help with this, even if it isn't very much.

Dazed_and_C0nfused

Did you file Real Time Information submissions to HMRC reporting your directors salary?

If not why not?

sterling30

Dazed_and_C0nfused said:

Did you file Real Time Information submissions to HMRC reporting your directors salary?

If not why not?

Hi Dazed and C0fused - I would have to ask my accountant that question. So I am clear, are you asking me if the submissions were filed throughout my business operations, or as part of my Job Seekers Allowance claim?

Yamor

If you were indeed paid up to the NI threshold, then you would be entitled to JSA, as you are treated as having paid Class 1 contributions from the LEL, but only actually start paying NI at a higher threshold.

I would follow up with your accountant and ask how much was put through payroll for each of the two relevant tax years.

Dazed_and_C0nfused

sterling30 said:

Dazed_and_C0nfused said:

Did you file Real Time Information submissions to HMRC reporting your directors salary?

If not why not?

Hi Dazed and C0fused - I would have to ask my accountant that question. So I am clear, are you asking me if the submissions were filed throughout my business operations, or as part of my Job Seekers Allowance claim?

By your limited company as an employer (of yourself).

If not why do you think DWP are wrong?  The tax you have paid is of no relevance to a JSA claim, it's NI that is important and if you haven't filed payroll data then you may have created your own problem.

And that's before thinking about the possible (negative) impact on your State Pension 😳

sterling30

Yamor said:

If you were indeed paid up to the NI threshold, then you would be entitled to JSA, as you are treated as having paid Class 1 contributions from the LEL, but only actually start paying NI at a higher threshold.

I would follow up with your accountant and ask how much was put through payroll for each of the two relevant tax years.

What is 'LEL' ?

What do you recommend I do once I have obtained the answer from my accountant to your suggestion?

poppy12345

sterling30 said:

Yamor said:

If you were indeed paid up to the NI threshold, then you would be entitled to JSA, as you are treated as having paid Class 1 contributions from the LEL, but only actually start paying NI at a higher threshold.

I would follow up with your accountant and ask how much was put through payroll for each of the two relevant tax years.

What is 'LEL' ?

Lower Earnings limit, which is £123/week. If no earnings were reported or it was less than this that was reported then this will be your problem and there will not be any entitlement to JSA.

Have you checked entitlement to Universal Credit? It's means tested so if you have savings/capital of more than £16,000 you're excluded from claiming. If you live with a partner you will need to claim as a couple. Use a benefits calculator to check entitlement. https://www.entitledto.co.uk/benefits-calculator

BoGoF

sterling30 said:

Yamor said:

If you were indeed paid up to the NI threshold, then you would be entitled to JSA, as you are treated as having paid Class 1 contributions from the LEL, but only actually start paying NI at a higher threshold.

I would follow up with your accountant and ask how much was put through payroll for each of the two relevant tax years.

What is 'LEL' ?

What do you recommend I do once I have obtained the answer from my accountant to your suggestion?

LEL = Lower Earnings Limit

Depends on the accountants answer - if he has filed the correct information through RTI then you go back to DWP. This has potential to affect your state pension as well, you may well to check your NIC contributions through creating a personal tax account on GOV.UK. If they haven't filed things then your complaint is with your accountant

Yamor

sterling30 said:

Yamor said:

If you were indeed paid up to the NI threshold, then you would be entitled to JSA, as you are treated as having paid Class 1 contributions from the LEL, but only actually start paying NI at a higher threshold.

I would follow up with your accountant and ask how much was put through payroll for each of the two relevant tax years.

What is 'LEL' ?

What do you recommend I do once I have obtained the answer from my accountant to your suggestion?

The 'Lower Earnings Limit'.

In the relevant years it was £6,240/year.

Find out the answer first, and then we can recommend a course of action!

sterling30

OK thanks for all the advice. I have written to my accountant and will publish the feedback.