Selfemployed UC + PAYE treatment of tax refund

seatbeltnoob

Here's another super obsecure dilema I have. I'm not sure if anyone will have the answer. In any case I will update after the fact when I do get an answer.

I am self employed through a LTD company and pay myself throughthe PAYE of the company.

When I forecast that I am going to be hitting below the minimum income floor. I tend to pay the MIF amount through PAYE which has the effect of rolling forward any losses so I can catch up the following month.

Note: I am going to edit these numbers ever so slightly for privacy and dont want to use exact numbers as it will leave a fingerprint.

On April I paid myself £1700 through PAYE, incurring £130 income tax (NO NI as directors NI kicks in all together after youve gone over cumulative threshold.

N.b. The income tax wasn't actually paid over to HMRC yet, it generated a balance due by 21st July thus far.

So company owes £130 to HMRC and paid the employee [me] £1570 take home earnings.  that month. UC award is based on takehome pay. So it was calcuated based on £1570 income.

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On May, I predict that I will exceed the MIF and cover my losses from previous month. I paid myself £10 through PAYE. Expecting to be paid that. But the payroll software generated a tax refund to myself. So the total pay to me is £140. £10 base pay and -£130 income tax refund.

ergo. instead of the company paying HMRC the employees £130 income tax, it has recaculated the running total and now no tax is due. So the tax taken off April payslip will be returned to the employee on May payslip.

For the purpose of universal credit. What would be the PAYE income on the UC aware calculations?

Would it be £10 or £140?

if it is £10 would it recalcute Aprils payslip based on the takehome being actually £1700, not £1570.

The reason I asked is I like to sculpt my income so I am maximising the MIF. I have a spreadhseet that I keep up to date and it takes into account what my UC income and expenses will be and predicts my self employed income and UC award. If I see that I will have a surplus above MIF, I bring it down to MIF level by paying off accrued charges and taxes. (I do not beleive this is deprivation of capital, because these taxes are due and have accrued. I'm just paying them in small installment before the due date)

Yamor

£140.

Re. paying taxes early, DWP have explicitly said that this is fine.

seatbeltnoob

Yamor said:

£140.

Re. paying taxes early, DWP have explicitly said that this is fine.

Thanks, thats good to know because I just did this as I presumed it was reasonable.

seatbeltnoob

thread update

The payroll correctly reported a PAYE of £140 to HMRC & UC.

UC used £140 for calculation of earnings (not £1).

HMRC employers PAYE portal has credited the emplpyers account back with £140 so no balance is oweing.

Happy days.

xxxxxxxx

Am I right that you are also declaring your Self Employment earnings separately to UC?
Presumably not much for April 
And more than MIF for May?

seatbeltnoob

xxxxxxxx said:

Am I right that you are also declaring your Self Employment earnings separately to UC?
Presumably not much for April 
And more than MIF for May?

I am reporting my SE earnings to UC via the correct channels that self employed people do.

My self employed earings in April were below MIF. But this trick allows me to effectively carry forward losses. It's just making the best out of a crap situation.

UC for self employed basically allows you to carry forward losses, if your profits are below £0. But if you made low amount of profit anywhere between £0 and £1556 [current MIF] then you're stuffed - you cannot recoup the hit you received for not earning the minimum income floor - your UC award will be as if you earned the MIF.

Being a ltdo company- there is a trick we have. That sole properitors dont.

Paying yourself through your own company. You can pay yourself your MIF through PAYE. and it will take your business profits into negeative which can be carried forward. Because your company paying your wages is an expense of the business.

I wish the system was chnaged so anything below MIF can be carried forward in this way for everyone. Worrying about not meeting MIF, having to manage cashflow (delay outgoings, defer receipts etc it just a headache and affects running of the business massively).

Certain businesses have massive swings in income and expenses. You might receive 4x your MIF in income in one month. Then another month you can have -4x in expenses another month