Universal credit, company director

Roydc

Iam a one of 2 directors for our small limited company, i need to change to universal credit from tax credits, UC are insisting iam self employed even though iam an employee of the Ltd company.
As a company we are still recovering from covid/cost of living so wages taken for the last year are slightly lower than normal and they are saying they will decide if the company is viable, which i think is unfair as we are trying to make the business a success,
They are also asking about profits but as i understand the money made belongs to the Ltd company and not the directors.
Its seems to be a bit of a mine field changing over to UC

Hermann

Directors are treated differently by UC compared to Tax credits and in addition the Minimum Income Floor comes in to play so you'd need to explore if that would apply to you.

Some info here... https://www.entitledto.co.uk/help/company-directors-and-self-employment

And some guidance here... https://www.gov.uk/government/publications/universal-credit-and-self-employment-quick-guide/universal-credit-and-self-employment-quick-guide

Grumpy_chap

Roydc said:

Iam a one of 2 directors for our small limited company, i need to change to universal credit from tax credits, UC are insisting iam self employed even though iam an employee of the Ltd company.
As a company we are still recovering from covid/cost of living so wages taken for the last year are slightly lower than normal and they are saying they will decide if the company is viable, which i think is unfair as we are trying to make the business a success,
They are also asking about profits but as i understand the money made belongs to the Ltd company and not the directors.
Its seems to be a bit of a mine field changing over to UC

UC works on the basis of "looking through the veil" of the Ltd Co. where the individual is operating in a manner that is analogous to self-employed.  I am sure someone will explain better than I can and give more complete information, but it looks at the actual income to the business.  

Who is the other Director?  Are they part of your family unit, or a wholly independent individual other than the business relationship?

Does the business use cash accounting or accrual accounting?

maisie_cat

Basically a director controls the company and can therefore decide what pay they pay themselves as an employee. Therefore they are in a position to manipulate their income to their own personal benefit.
This loophole was closed with UC and company profit is declared instead of "pay" 

peteuk

Equally they closed the loophole for tax, one of my old colleagues is being done for Tax evasion, as a nurse he worked agency shifts, set up his own company and paid himself minimal wage.  When it came to tax he paid not a lot and put the rest down to expenses.   

Tax man is after him and although he wont admit it publicly he knew what he was doing, but says it was lawful a few years ago.

Not that I am suggesting the OP is doing this, but sadly those who abuse the system then foul it for those genuine people. 

ElwoodBlues

Business owners are treated as self employed for UC purposes. Directors aren't necessarily owners though, so being a director is technically irrelevant, it's shareholding that counts. In fact, UC legislation doesn't even mention company directors, only owners.

UC effectively uses a kind of 'look through' method so business profits (your share of) are treated as your personal income, even though they are legally company profits. It's very messy and complicated for small business owners to claim UC as you have to submit monthly accounts on a cash basis.

Also bear in mind that they should give you benefit of being exempt from the 'minimum income floor' for the first 12 months of your claim (unless you've already used that in a previous UC claim), so profitability for your first year is irrelevant. But after 12 months, you'll be expected to be earning at least the equivalent of minimum wage.

Make yourself familiar with the DM handbook on self employed earnings: https://assets.publishing.service.gov.uk/media/64ae775fc033c100108060c5/admh4.pdf 

NedS

ElwoodBlues said:

Business owners are treated as self employed for UC purposes. Directors aren't necessarily owners though, so being a director is technically irrelevant, it's shareholding that counts. In fact, UC legislation doesn't even mention company directors, only owners.

UC effectively uses a kind of 'look through' method so business profits (your share of) are treated as your personal income, even though they are legally company profits. It's very messy and complicated for small business owners to claim UC as you have to submit monthly accounts on a cash basis.

Personally, I actually think it 's very simple.

Monthly spreadsheet - 1 column for cash in, 1 column for cash out. Subtract one from the other and you have your 'income' or loss for the month.

If that is too much effort, or you can earn a better rate of return on the 1h/month of your time than you get from claiming UC, then don't claim UC.

Perhaps I should start a business doing people's monthly returns for UC - £20/month flat rate fee for MSE members and it's a deductible business expense!

ElwoodBlues

NedS said:

ElwoodBlues said:

Business owners are treated as self employed for UC purposes. Directors aren't necessarily owners though, so being a director is technically irrelevant, it's shareholding that counts. In fact, UC legislation doesn't even mention company directors, only owners.

UC effectively uses a kind of 'look through' method so business profits (your share of) are treated as your personal income, even though they are legally company profits. It's very messy and complicated for small business owners to claim UC as you have to submit monthly accounts on a cash basis.

Personally, I actually think it 's very simple.

Monthly spreadsheet - 1 column for cash in, 1 column for cash out. Subtract one from the other and you have your 'income' or loss for the month.

If that is too much effort, or you can earn a better rate of return on the 1h/month of your time than you get from claiming UC, then don't claim UC.

Perhaps I should start a business doing people's monthly returns for UC - £20/month flat rate fee for MSE members and it's a deductible business expense!

You make it sound so simple. But it really isn't. Except for the most simple businesses, there's going to be a whole bunch of other transactions in and out of a business account that aren't an income or (allowable) expense. Nearly every business runs their accounts on an accruals basis, so cash basis is going to produce a completely different set of figures. Also, when are you supposed to generate these cash accounts - seeing as DWP insist that they're submitted on the last day of the month. The only time it's going to be possible to do that is at 11:59pm on the last day. Obviously every small business owner has nothing else to do at that exact time of the month.