Self employed/savings/business capital

popcornpurple

Hi folks. 

I am going self employed after being made redundant a while ago and it has been suggested to me to claim UC while I get my business off the ground. I have never done either before and am finding it all rather confusing. 

My question is around savings and business capital. 

I have a small amount of savings and would like to know if I can allocate some of it as business capital or will it still be considered as 'savings'? I'm going to use some to pay off personal debts to reduce my monthly outgoings but would like to keep some aside to cover upcoming business costs. 

Rough figures, in case it helps: 

Savings £10k 
Debts £2.2k
Ideal business capital £2k

Any help is much appreciated 🙏 

poppy12345

No, you can't move your capital from one place to another and expect UC to ignore that. It would still be treated as your capital. For capital of more than £6,000 there's a £4.35/month deduction for every £250 or part thereof over that amount. 

You can pay off your debt as this will not be treated as deprivation of capital. 

If you live with a partner you'll need to claim UC as a couple and whether there's any entitlement will depend on your joint circumstances. You can use a benefits calculator to check entitlement.https://www.entitledto.co.uk/benefits-calculator/

TELLIT01

How long ago is 'a while ago'?  There may be the possibility of claiming New Style JSA.  That would depend on when you last worked amongst other factors.

popcornpurple

TELLIT01 said:

How long ago is 'a while ago'?  There may be the possibility of claiming New Style JSA.  That would depend on when you last worked amongst other factors.

Thanks for your reply. 

I was made redundant on 31/12/22 and have lived extremely frugally off the redundancy money and savings since. 

Very grateful for any help re what I can claim but what I really need to ascertain is if I can have money set aside for my business or if it'll count as savings. I know £6K of savings is allowed before UC starts being reduced but would this include money for the business? 

popcornpurple

poppy12345 said:

No, you can't move your capital from one place to another and expect UC to ignore that. It would still be treated as your capital. For capital of more than £6,000 there's a £4.35/month deduction for every £250 or part thereof over that amount. 

You can pay off your debt as this will not be treated as deprivation of capital. 

If you live with a partner you'll need to claim UC as a couple and whether there's any entitlement will depend on your joint circumstances. You can use a benefits calculator to check entitlement <had to remove your link as I'm a newbie>

Thank you. Sorry for replying to the other person first, my phone didn't show your reply until now. 

I don't live with or have a partner or dependents. Thank you for the link; I have used calculators already and my question is very specifically about business capital as so far I haven't found an answer to this from my research. 

I completely understand that I can't move money around to hide it from UC; that would be fraud and I'm certainly not doing that. 

But in this case I would be ring-fencing a portion of my savings to use for my business - is this not allowed? If not, I don't understand how people can be expected to set up a business without capital? 

I am sorry if I'm not explaining myself very well. 

kaMelo

popcornpurple said:

poppy12345 said:

No, you can't move your capital from one place to another and expect UC to ignore that. It would still be treated as your capital. For capital of more than £6,000 there's a £4.35/month deduction for every £250 or part thereof over that amount. 

You can pay off your debt as this will not be treated as deprivation of capital. 

If you live with a partner you'll need to claim UC as a couple and whether there's any entitlement will depend on your joint circumstances. You can use a benefits calculator to check entitlement <had to remove your link as I'm a newbie>

Thank you. Sorry for replying to the other person first, my phone didn't show your reply until now. 

I don't live with or have a partner or dependents. Thank you for the link; I have used calculators already and my question is very specifically about business capital as so far I haven't found an answer to this from my research. 

I completely understand that I can't move money around to hide it from UC; that would be fraud and I'm certainly not doing that. 

But in this case I would be ring-fencing a portion of my savings to use for my business - is this not allowed? If not, I don't understand how people can be expected to set up a business without capital? 

I am sorry if I'm not explaining myself very well. 

From ADMH2
https://assets.publishing.service.gov.uk/media/672b76a2094e4e60c466d22a/admh2.pdf

Business Assets
Assets which are used wholly or mainly for the purposes of a trade, profession or vocation which the person is carrying on, are disregarded indefinitely
Meaning of business assets
H2022 Business assets include standard items such as machinery, vehicles, fixtures and cash held in the bank (including money held following the sale of assets). They may also include items such as customer lists and contacts, current and future contracts and goodwill.

As long as the cash in the bank is a business asset it can be disregarded but the onus is always on a claimant to prove a disregard should apply. Whether 'ringfencing a portion of your savings' would count as a business asset (as opposed to money in a business account in the name of the business) is something only a decison maker could decide.

popcornpurple

kaMelo said:

popcornpurple said:

poppy12345 said:

No, you can't move your capital from one place to another and expect UC to ignore that. It would still be treated as your capital. For capital of more than £6,000 there's a £4.35/month deduction for every £250 or part thereof over that amount. 

You can pay off your debt as this will not be treated as deprivation of capital. 

If you live with a partner you'll need to claim UC as a couple and whether there's any entitlement will depend on your joint circumstances. You can use a benefits calculator to check entitlement <had to remove your link as I'm a newbie>

Thank you. Sorry for replying to the other person first, my phone didn't show your reply until now. 

I don't live with or have a partner or dependents. Thank you for the link; I have used calculators already and my question is very specifically about business capital as so far I haven't found an answer to this from my research. 

I completely understand that I can't move money around to hide it from UC; that would be fraud and I'm certainly not doing that. 

But in this case I would be ring-fencing a portion of my savings to use for my business - is this not allowed? If not, I don't understand how people can be expected to set up a business without capital? 

I am sorry if I'm not explaining myself very well. 

From ADMH2
<link removed as I'm a newbie and can't post links, even in a quote>

Business Assets
Assets which are used wholly or mainly for the purposes of a trade, profession or vocation which the person is carrying on, are disregarded indefinitely
Meaning of business assets
H2022 Business assets include standard items such as machinery, vehicles, fixtures and cash held in the bank (including money held following the sale of assets). They may also include items such as customer lists and contacts, current and future contracts and goodwill.

As long as the cash in the bank is a business asset it can be disregarded but the onus is always on a claimant to prove a disregard should apply. Whether 'ringfencing a portion of your savings' would count as a business asset (as opposed to money in a business account in the name of the business) is something only a decison maker could decide.

This is so helpful, thank you very much! 

Grumpy_chap

kaMelo said:

As long as the cash in the bank is a business asset it can be disregarded but the onus is always on a claimant to prove a disregard should apply. Whether 'ringfencing a portion of your savings' would count as a business asset (as opposed to money in a business account in the name of the business) is something only a decison maker could decide.

As you say, only a DM can decide.
It is quite possible that declaring one's own assets as business assets is more complicated than is possibly being described in the thread.

The limit for UC before deductions apply is £6k
I note the OP has £10k
£2.2k will be used to pay off debts.  Leaves £7.8k
The OP wishes to declare that £2k is business working capital.
On the one hand, that is not an excessive amount for a start up business to have as working capital.
On the other hand, that £2k is a convenient figure with respect to the £6k threshold.

What evidence will a DM wish to see that this is genuine business start-up capital?
Maybe a business plan?
Maybe clearly identified business purchases?

How is own money introduced to a business treated and does that differ from funds generated by the business trading activity but not yet spent in furtherance of the business or drawn from the business?

If the OP can make this work from the original £10k, could a.n.other make it work from an original £12k?
£2k to pay down debt
£4k declared as business working capital
£6k threshold avoided.

There must be some guidance around this somewhere, or at least "custom and practice", otherwise it would be a widely exploited loophole if anyone could simply state they are starting a business and assign savings as business capital so longer considered as capital against the £6k threshold.

UC is complex in the case of the self-employed / business owner and does "look through the veil" to underlying income and expenses of the business.

kaMelo

Grumpy_chap said:

kaMelo said:

As long as the cash in the bank is a business asset it can be disregarded but the onus is always on a claimant to prove a disregard should apply. Whether 'ringfencing a portion of your savings' would count as a business asset (as opposed to money in a business account in the name of the business) is something only a decison maker could decide.

As you say, only a DM can decide.
It is quite possible that declaring one's own assets as business assets is more complicated than is possibly being described in the thread.

The limit for UC before deductions apply is £6k
I note the OP has £10k
£2.2k will be used to pay off debts.  Leaves £7.8k
The OP wishes to declare that £2k is business working capital.
On the one hand, that is not an excessive amount for a start up business to have as working capital.
On the other hand, that £2k is a convenient figure with respect to the £6k threshold.

What evidence will a DM wish to see that this is genuine business start-up capital?
Maybe a business plan?
Maybe clearly identified business purchases?

How is own money introduced to a business treated and does that differ from funds generated by the business trading activity but not yet spent in furtherance of the business or drawn from the business?

If the OP can make this work from the original £10k, could a.n.other make it work from an original £12k?
£2k to pay down debt
£4k declared as business working capital
£6k threshold avoided.

There must be some guidance around this somewhere, or at least "custom and practice", otherwise it would be a widely exploited loophole if anyone could simply state they are starting a business and assign savings as business capital so longer considered as capital against the £6k threshold.

UC is complex in the case of the self-employed / business owner and does "look through the veil" to underlying income and expenses of the business.

There is no guidance or custom and practice as such, it would be impossible to write such information as each case has it's own set of needs and circumstances so would need to be judged on their own merits. Always remember, any clearly defined guidance or rules are also a clearly defined way to game the system.

As to what evidence, as a start up it's not unreasonable to inject some working capital but I would expect, for example, you would need to demonstrate working capital being 'worked'  and not just left sitting their untouched for months on end.  But that's just what I think and I'm not a DM who may have other ideas and require more or less evidence.

popcornpurple

@Grumpy_chap @kaMelo

Thank you both for your very helpful input. Lots of food for thought. 

I'm absolutely not trying to game the system and I know that's not what either of you are suggesting but this has made me think about how an outsider might view my situation. I know I'm honest and genuine but I appreciate that whomever assesses my situation will do so with suspicion (maybe not the right word but my brain can't find a better one atm). 

I would hope the fact that I've not claimed UC or sought any help before now despite being unemployed for 2 years will show I'm a genuine claimant who has reached a 'needs must' situation. 

The reason I'm paying off some debts now is the interest rate has gone up so it makes sense to (a) reduce my monthly outgoings and (b) savings interest rates are very low so as Martin Lewis says it's better to clear expensive debt than save at a low rate (and yes I've got a savings account with the best available interest rate). I had always planned to do this at this point regardless of considering claiming UC. 

I am going to see if I can speak to a benefits advisor in the next few days as I don't want to do anything wrong. If they say the business capital is not possible I can use that money to clear more debt. Just not sure how I'll grow my business without it but I'm sure they will be able to give specific advice on that too. 

Grumpy_chap

popcornpurple said:

@Grumpy_chap @kaMelo

Thank you both for your very helpful input. Lots of food for thought. 

Just to clarify, my comments are only those of a layperson and I have no special knowledge or insight.

I do know that UC is complex in the way in manages self employed and / or Ltd Co Owner - Director claimants.  This is of necessity as there could be opportunities to "game" the system otherwise.

You may be worth making a claim regardless and see if you are still within time to claim nJSA.  Even if you cannot claim any monetary benefits, there is value in having your NI "stamp" credited on your behalf.  The Work Coach should also be able to advise about opportunities / support for starting your own business - unfortunately the scheme I was able to take advantage of (NEA - New Enterprise Allowance) is no more but there might now be a successor scheme in place.