Universal Credit and not-for-profit

Lisa2751

I’m hoping somebody with experience of Universal Credit and limited companies/social enterprises can help me understand this, because I am honestly at a loss with it.

After being ill for years with a rare disease and living with chronic pain, I have recently set up a not-for-profit social enterprise delivering mental wellbeing programmes for children and young people. I receive Universal Credit including LCWRA, and I am the sole director of a Company Limited by Guarantee.

Setting this up has been a huge step for me. The whole point was to build something around what I am able to do, create some financial security for myself and my autistic teenagers and, hopefully, become less reliant on benefits as the organisation grows.

I don't take the profits from the company. Money that comes into the organisation goes back into running it, developing and delivering programmes, paying staff and delivery costs, equipment, insurance, site costs and growing the organisation. Eventually I want it to be able to pay me a proper wage, but we aren't at that stage yet.

My UC payment has now been stopped. I don't yet know whether the company is the reason, and previously I was told that my claim was fine.

While trying to work out what has happened, I've now read that because I am the sole director and have control of the company, UC could potentially treat me as self-employed and look at the company's income and expenditure rather than simply looking at what the company actually pays me.

This is the bit that has really worried me because we apply for grants.

We could receive a £25,000 grant upfront to deliver a programme over a year. That money isn't mine and I haven't earned £25,000. It belongs to the company and has been given to us to deliver that programme for local vulnerable kids. It could sit in the company bank account for months while we deliver the work it was given to us for. I might only receive a small amount of it personally for the hours I actually work, if anything at all.

What I am now being told is that because I am the sole director, UC could potentially look at that money as part of my self-employed income, even though I haven't personally received it.

I honestly don't understand how that can work. If £25,000 goes into the company bank account to pay for a programme over the next year, how can that affect the UC I rely on to support my family now? I can't take that £25,000 and pay my rent or buy food with it. It isn't my personal income.

That puts me in an impossible position. I have spent years being unable to build the future I wanted because of my health. I have finally found something I can build around my limitations, which could eventually allow me to earn properly again and give my family more financial security. I don't receive child maintenance, and I home educate due to SEMH, so being able to build my own income matters enormously to us.

But I cannot afford to suddenly lose the UC my family currently relies on because the organisation becomes successful at bringing in funding to deliver its work. 

I've looked briefly at becoming a CIC because apparently the asset lock can make a difference, but I'm not convinced a CIC is right for us. We work with horses and I need to know that they would go to a good home if anything happened to the company, not just another charity that would pass them on. Depending on their ages, they would come with me, a CIC wouldn't allow this. I would much rather continue as the not-for-profit Company Limited by Guarantee that I have already set up for this reason.

Has anybody actually been in this position? Particularly somebody who is a sole director of a not-for-profit company and receives UC/LCWRA?

How does UC actually deal with grants paid to the company? Do they really treat money belonging to the organisation as my income just because I am the sole director, even when the money is there to pay for programmes over the following months?

I'm not trying to hide income or avoid declaring money that I actually earn. I want to earn more. I want to build something sustainable and eventually need less support.

What I can't understand is how I am supposed to get from being reliant on benefits to being financially independent if growing the organisation that could get me there risks taking away the support my family needs before I am actually earning enough to replace it.

marcia_

https://forums.moneysavingexpert.com/discussion/6679526/universal-credit-and-not-for-profit

if you are the director of a company why are you not paying yourself a wage? UC are right to assume you should be and that you are self employed

Woodstok2000

https://www.gov.uk/self-employment-and-universal-credit

Have you read this? Are you following all the reporting requirements? If your company isn't making a profit are you still looking for paid work elsewhere?

itsthelittlethings

https://forums.moneysavingexpert.com/discussion/comment/82100111#Comment_82100111

They don't need to look for work if they have LCWRA. Unless their UC has been stopped as UC think their activities with the not for profit negate their LCWRA status, which I don't think tends to happen.

OP was there a reason given as to why your UC stopped?

Woodstok2000

https://forums.moneysavingexpert.com/discussion/comment/82100117#Comment_82100117

Good point - I missed it was LCWRA. Other questions still relevant - theyre probably assessing the company income against OP...

Lisa2751

https://forums.moneysavingexpert.com/discussion/comment/82100117#Comment_82100117

They stopped it back in June, and asked for bank statements, then said that everything was ok and that it was back to normal. They said it was due to everyone needing a review. Then they have suddenly stopped it again without warning.

Lisa2751

I don't need to work, but for my mental health and physical health, I need to do more than sit at home, I am trying to build a not-for-profit for my community and family around things I believe in, that will hopefully, eventually lead to me working part-time and lead to me being off benefits.

UKTaxHelper

The company side is worth getting straight first, because it is the bit you can actually control. A company limited by guarantee is its own legal person, so a restricted grant sitting in its bank account is the company's money and not yours, and the accounts should show it matched against the programme costs it was given for. Where people come unstuck is the timing rather than the principle, since a grant paid as one lump lands in a single month while the spending it funds runs over a year. If the funder will let you draw it down in stages against delivery, that usually reflects what is really happening anyway and it is far easier to evidence later.

Grumpy_chap

UC will 'pierce the veil' of the Ltd Co and look at income to the business less allowable business expenses.

I don't take the profits from the company. Money that comes into the organisation goes back into running it, developing and delivering programmes, paying staff and delivery costs, equipment, insurance, site costs and growing the organisation. Eventually I want it to be able to pay me a proper wage, but we aren't at that stage yet.

Why is the company paying wages to others before paying wages to you?

I don't know how UC will treat the grants received as these funds are 'reserved' in accordance with the grant awarding body. Except Ltd Co does not have 'reserved' funds in quite the same way as would be the case for a CIO / charity.

We work with horses and I need to know that they would go to a good home if anything happened to the company, not just another charity that would pass them on. Depending on their ages, they would come with me

You really need to have an absolute break between you and the operating business. Assets can't 'just come with you ' if the operating organisation ceases to exist.

I have no idea how UC assesses the capital value of horses.

Have you taken professional advice?

QrizB

if you are the director of a company why are you not paying yourself a wage?

and

Why is the company paying wages to others before paying wages to you?

It's a company limited by guarantee. Most of them don't pay salaries to their directors.

OP:

My UC payment has now been stopped. I don't yet know whether the company is the reason, and previously I was told that my claim was fine.

It sounds like you're just speculating that your role as director of this CLG is what's stopped your UC; you don't know whether that's the case or not.

What I am now being told is that because I am the sole director, UC could potentially look at that money as part of my self-employed income, even though I haven't personally received it.

Who specifically has told you this?

Grumpy_chap

if you are the director of a company why are you not paying yourself a wage?

and

Why is the company paying wages to others before paying wages to you?

It's a company limited by guarantee. Most of them don't pay salaries to their directors.

Yes, I know. But, in this case, the OP doesn't have the means to be working for no reward and then relying on UC for income.

I can't find specific information about starting up a 'not-for-profit' and UC, but suspect the standard self employed rules will apply.

https://www.gov.uk/government/publications/universal-credit-for-the-self-employed/universal-credit-and-self-employment-quick-guide

Assets within the business can be disregarded.

The nearest I can find online, but it is not properly referenced and may be incorrect, indicates that CLG is treated the same as Sole Trader / Ltd Co Director, but CIC or CIO would not be as the latter two restrict drawing profits (though salaries can still be paid, including to Directors).