what counts for expenses on UC

confusable

Hi , 

being self employed i.e have a ltd property which manages and owns properties (I was migrated so no problem in terms of capital) and on UC i have to work out earnings and expenses. I would like to clarify a few things in regards to expenses. What is the rules in regards to the following?

Mortgage payments ? 
Received £3000 from a client to be used to refurbish property not all used this month?
maintenance on properties we own?

many thanks

confusable

apologies i did not realise i would not be able to edit and add to the above, 
firstly a mistake ... should say i have a ltd "company"
secondly i would also like to know what the rule is about : money borrowed into the ltd company from 1.private individuals 2.other ltd companies. 

Many thanks 

tacpot12

You should find some answers in here: ADM Chapter H4: Earned income - self-employed earnings (publishing.service.gov.uk)

I'm sorry, but I don't know enough to be able to guide you through it. 

confusable

have i not provided enough information or you personally dont know enough about how the system works?

kaMelo

Self employment and UC is complicated sometimes and given what you do I imagine yours is going to be complicated.

According to ADM Chapter H4
https://assets.publishing.service.gov.uk/media/66155003eb8a1bb45e05e30f/admh4.pdf

H4260 Expenses that should not be allowed are

1. expenditure on non-depreciating assets including

    1.1property

    1.2 shares

    1.3 other assets held for investment purposes
2. any loss incurred in respect of a previous assessment period

3. repayment of capital in relation to a loan taken out for the purposes of the trade, profession or vocation

 
And

Expenditure on non-depreciating capital assets

H4261 Depreciation of an asset is the amount that the value of that asset is estimated to have reduced, due to age or wear and tear. Expenditure on assets which have been purchased by the business as an investment cannot be allowed as a permitted expense.

My interpretation of those paragraphs, particularly the lines in bold, would suggest that both mortgage repayments and  money spent on property maintenance are not permitted expenses. Interest paid by the company is a permitted expense but limited to around £40 per assessment period. 

Regarding loans;

Capital receipts

H4190 Capital receipts do not form part of the actual receipts of the business. For example,

1. funds introduced by the owner of the business for the purposes of financing the business and

2. loan capital borrowed from third parties for financing purposes.

As I said self employment and UC can be complicated sometimes. Read through the paper linked to above and hopefully it will help you see how your situation fits into the rules

confusable

@kaMelo thanks
I did read through it and it seems that only £41 is an allowed expense for interest and it does not exclude mortgage payments from this rule. So if my rents are £2000 and interest £1000 instead of a profit of £1000 they will look at it as a profit of £1959! ouch
it also seems, as you quote, that expenditure on the property, maintenance etc is also not allowable so if i have to replace a boiler at £2000 that will not be an expense! another ouch!

I have just looked through the adding expenses part of my UC account, it asks for expense 1, add expense.... so i have to add all 80 expenses the business incurred this month and a description! triple ouch!

Ok i have asked my work coach lets see what they think

8dayweek

I think the section you need in that link is H4365. 

My understanding is that being a Landlord is not considered a trade, professional or vocation and thus you can’t be considered Gainfully Self-Employed. 

Instead the Properties owned are treated as personal Capital for UC purposes (with relevant Capital disregards if you’re a Managed Migration case). 

You would still be required to report income and expenses in relation to the Ltd Co - so Wages paid would be an expense, but a lot of the other expenses are excluded / not permitted. 

kaMelo

8dayweek said:

I think the section you need in that link is H4365. 

My understanding is that being a Landlord is not considered a trade, professional or vocation and thus you can’t be considered Gainfully Self-Employed. 

Instead the Properties owned are treated as personal Capital for UC purposes (with relevant Capital disregards if you’re a Managed Migration case). 

You would still be required to report income and expenses in relation to the Ltd Co - so Wages paid would be an expense, but a lot of the other expenses are excluded / not permitted. 

Wow, I hadn't seen that paragraph, that's a bit of a kicker. 

Yamor

There are three things to consider here: the policy intent, the regulations, and what currently happens in real life.

The OP's company is what is sometimes referred to as a "hybrid" company. It is carrying on a property business (the properties owned by the company) and also carrying on a trade (its management activities).

The policy intent is for the assets of the property business to count as capital and for the income of the property business to be disregarded as income, but added to your capital as it is received (after any expenses).
The assets used for the trade are to be disregarded as capital, but the income of the trade is to be included as self-employed earnings, after deducting any allowable expenses.
So:
- Mortgage interest payments are all expenses of the property business, and therefore not allowable as an expense for the trade.
- The £3k received from a client to refurbish their property is either income for the trade (if you simply charge them £3k, and then carry out the works on your own account), or has no relevance to UC (if it is simply held for the client to be spent as and when they direct).
- Maintenance on your own properties will generally just be shifting capital around, and not have any effect on UC. (Say you spend £5k on maintenance: beforehand you had £5k cash as an asset, now the property will have increased in value by approx. £5k.)
- Monies borrowed by the company (whether from individuals or from other companies) will cancel out, as the asset has an equal and opposing liability (within limited companies these can be set off against each other, unlike personal loans).

Moving on to the regulations: Unfortunately, the regs are not drafted very well, and there is scope to say that specifically in the case of a hybrid company, all income should count as self-employed earnings, even the income of the property business.
If that were to happen then clearly you could also deduct all the expenses of the property business, but the mortgage interest expense would be limited to £41 per assessment period.
However, I would be fairly confident in being able to argue that this interpretation of the Regs is not correct.

Finally, coming to what is currently happening in practice: To be honest, it's a mess, with no consistency, as the work coaches etc have no clue how to deal with these cases, and they therefore make things up as they go along...
Most are not even aware of the hige difference between a property business and a trade and insist on claimants including all income as self-employed earnings, in all limited company cases.

huckster

I would question suitability of UC for those involved in such a property business. 

I don't think those drafting UC legislation took much time considering this type of self employment  as they probably thought that not many owning a property business would claim UC. 

In regard to trading activities, what would be included for a property business. Management charges to tenants ? 

For many of these TC transfers to UC, they are likely to be on UC for 12 months only and then don't qualify further.

confusable

@Yamor
wow thankyou for your informative response

When I asked about monies in from other parties I was not clear in my intention. My question was not in regards to the capital but rather whether the interest paid to these "bridging loans" (secured against properties) would be treated as mortgages and whether that would be different if it was a private loan into the company (unsecured against property)?

I think the most revealing part was "To be honest, it's a mess, with no consistency, as the work coaches etc have no clue how to deal with these cases, and they therefore make things up as they go along..."

Anyway my work coach responded that mortgages can be counted as an expense....

Also in regards to  "The £3k received from a client to refurbish their property is either income for the trade (if you simply charge them £3k, and then carry out the works on your own account), or has no relevance to UC (if it is simply held for the client to be spent as and when they direct)."  The latter is the case but as a work coach would probably not understand that and strictly speaking those monies should be in a client account it will probably be easier to make sure the money comes in and out that month and be treated as income/expense?

@huckster

I agree that in all likelihood UC was not setup for this type of business and in fact without transitional protection Uc would not be relevant b/c of the capital value of the properties.