A client used to work as a self employed IT consultant and so had (and still has) a company set up to invoice clients. He is the company director but never recived a wage/dividends for this role and the only money ever coming in to the business were from his earnings. He has been unable to work since Jan 08 and eventually claimed IB in April/May. His application form was returned to him with a compliment slip from IB saying he should be paying himself SSP. This is obviously not a legal decision on his claim!

The business has no money to be able to pay him SSP but in talking on the phone to IB I don't seem to be understood. Does anyone have any tips on the info I should give to IB to clarify things and get them to assess the clients claim - I am now doubting myself (not having alot of experience with directors) so should I be heading in a diffferent direction for this client?

Many thanks for your thoughts.

Deana

I had a client with the same issue, and it's correct that company directors are seen to be "employees"

I called the HMRC SSP dept and they took it over after deciding he could not afford to pay himself.

What a stupid way of organising things. What has this man been living on if the company isn't paying him anything? He can't have been getting working tax credit as he was plainly not in remunerative work; nor jobseeker's allowance as he was not available for work, so was he just abstracting money from the company in an unoffical sort of way and if so what were his accountants thinking of?

Also, as he was neither self-employed nor earning even up to the lower earnings limit, he must have a bloody great hole in his national insurance contribution record (so unless he hasn't been doing this long he can't qualify for incapacity benefit).

I can't see that there is a notional earnings rule for SSP, but the normal rule does involve having been earning at or above the lower earnings limt, which he obviously hasn't done.

All very fishy, and if I was HMRC, I would be wanting to know what ahs happened to the money earned by his company. Of course, if it isn't earning anything it's not surprising he's not feeling well. Why doesn't he try to find a job that pays him a salary?

Sorry if it sounds unsympathetic but I simply cannot understand why he is in this extraordinary and totally fuitless arrangement.

The way I read it was that his earnings were from his IT role. I think many self employed people are also company directors of their own business. I think it's fairly normal.

Are you saying then that he is (or was until he became ill) still a self-employed IT consultant? To whom did his clients pay his fees and what does the company do except issue invoices? Does the company maek any money out of it?

I'm sorry, I still don't understand the situation. A company is a legal entity with totally separate existence from the people who run it (the directors) and who work for it (the employees). In law it is a person in its own right and can own property and bank accounts, and enter into contracts in its own name. It is one of the three ways of running a business, the others being a self-employed sole trader, and a partnership, sometimes called a firm, which is a group of self employed people in business together on a profit-sharing basis.
People do use the words company and firm to mean a business generally but they have quite distinct meaning. Is this a real limited company, with the word "limited" after its name, registered with companies house and doing annual returns to companies house?

Or is he just self employed after all?

If you are a director of a company and work under a contract with the company you are an employee of it, not self-employed at all. You pay class 1 national insurance contributions and PAYE on your pay. You may also be a shareholder and own shares in it. I'm still failing to understand the relationship between this man and the company and who is actually running the business, making the contracts, and entitled to be paid.

So as a director of the company, if he is, what does he do?

mmmm. but ariadne, what a lot of self employed people do is set up a limited company on advice from their accountants, have their wages from their self employment paid into it, and then draw said wages out to live on. thus they pay out what they get in. so when they then fall ill and can't work, the company has no income because the sole employee is unfit for work. unless an employer of the company has been late in paying the invoice for the work done, the company has no income with which to pay the person. one anticipates that tax and other liability will have been set asied in some sort of special account to be paid to hmrc when required, i know not, but i do know that's the way a lot of people work...

I still think that you are either self employed or you are employed by a company and you either have profits from self-employment or the company invoices the customers and then pays you a salary.

At least that is what should happen. But it often doesn't, as people don't have the foggiest what it is all about.

Worried I was missing something obvious, I asked my husband, who is a tax accountant and a barrister, if there was any particular reason these days for a one-man operator to set up a company to work through, and he couldn't think of one, and can only assume that the scenario described is being run in a totally misconceived way. What is the company for and what is it doing? What's the point? And who are the shareholders?

Just because people do it doesn't mean it's right!

Thanks everyone for all your responses - my client has now been awarded IB, backdated to Feb 08.