Client moves back into own work after illness and comes off IB and onto RTWC. Pays self nowt from the business as setup costs were large and there's a significant overdraft. Works 36 hours pw plus.

Initial tack - stay on IB and claim doing permitted work. Not an option as

- earning nothing apparently means paying yourself less than minimum wage and therefore can't be condoned even though not specifically mentioned in the regs. as far as I can see.
- going back on IB for a period and then making a success of the business might well mean coming off IB but wouldn't have qualified for RTWC a second time (possibly).

Financially on a precipice so deemed not worth the battle.

JC+ alert client to RTWC before I have mentioned it; send the application and put it into payment knowing that earnings are nil. Now, surprise, surprise, they have decided that no RTWC should be paid as there are no earnings (minimum wage, blah, blah, blah!). I'm sure you get the gist).

Regs. appear to say no more than in employment (doesn't appear mention gainful) and earning <£15k. Nil is clearly <£15k.

Doesn't seem to be anything to clear this up. JC+ advice was to pay self £90pw and then put it back into business as and when, which is scandalous advice bearing in mind the mission is to make a successful business and such an approach would simply increase an already significant overdraft and affect CTB.

So... what's the argument and is there even a right of appeal?

Mike

Not strictly relevant but could they not also claim Tax Credits on basis of nil income.

My understanding is that most people who are self-employed (& certainly those who are running their own business) are not entitled to the minimum wage - i.e. the regulations do not apply to them.

In that case, why should JC+ insist on this self-employed person getting something which the regs. say doesn't apply to him?

Mike, where are the regs that stipulate that earnings are not in excess of the £15,000. The only reference I’ve found is in the explanatory note to the WFI Regs (which is not itself part of the regs), which states that a RTWC can be paid to someone “whose earnings do not exceed £15,000 per year”.

My interpretation of that (and any similarly worded legislative provision or official guidance where there is no direct legislation) would be that his earnings do not exceed the required amount. In my view it strains the construction to read into it that there do in fact have to be earnings in the first place.

This would defeat the purpose of the scheme; that is to encourage people with disabilities back into some form of employment by providing a temporary subsidy to a low income or nil income where a person’s self employment takes time to get off the ground.

The minimum wage regulations are intended to prevent employers exploiting their employees. They are not designed to hamstring the self-employed attempting to set up their own business by forcing them to take a profit from their business to the potential detriment to that business. In fact the National Minimum Wage Act 1998 refers and deals with employees and workers who work under a contract of employment. I can’t see it applying to the self-employed unless they are an employed earner of their own company. But an employment law specialist may correct me on that.

To clarify,

Advice re: WTC has been given. The business has been set up so that the owner is effectively an employee, which presumably is why they expect the minimum wage.

My initial reaction to this is to suggest the client requests a copy of the relevant legislation and guidance from JC+. It will be interesting (and entirely relevant) to know where they derive the idea of the need for minimum wage from. I am also minded to suggest he requests a reconsideration (whether or not there is a right to one) and see what happens.

Any thoughts?

Mike

In the absence of a specific regulation which allows them to treat a person as receiving the going rate for the job (such as the notional income reg in the IS Regs) then they have no power to treat him as receiving the wage that they think he should be getting but should deal with the facts as they stand.

Are you saying that he is an employee, which would imply that the business is set up as a limited company? If he is a sole trader or a partner in an unincorporated business, then he's self employed - has to be - there's no-one else to employ him. What class NI contributions does he pay and is he taxed under PAYE? Or is it all so recently and nebulously set up that no-one has thought this through? Hope he's had some professional advice (in this case, ideally from a real qualified accountant, not just this man he met in the pub who once did a book-keeping course at evening class - that's the problem with accountants: anyone can call themselves an accountant without any professional training at all...)

There are two directors in the firm. The other is clients partner and has no active role and no drawings etc. as they receive IB. To the best of my knowledge my client is an employee. However, I remain to be convinced that it's of any relevance to the main point i.e. that the relevant legislation makes no reference to having to "earn" anything other than "less than £15k". I suppose by implication it could be argued that "earn less than..." imputes some earning and that, by definition, that must be at least at minimum wage rate but to insist on that when a person chooses self-employment seems rather at odds with the supposed intent of RTWC.

Mike

Sorry, but I think you are contradicting yourself. You say that to the best of your knowledge he is an employee, then you refer to "chooses self-employment". As Ariadne indicates, whether he is an employee or not is normally a matter of fact. If he is paying Class 1 NI & PAYE then he is an employee & it is then most likely that minimum wage regulations apply to him - although whether they should be applied in this particular situation is another matter.

Also, if he is an employee then it is up to the company to pay him. If the company can't do so because it doesn't have the money then could someone argue the company is trading while insolvent? This could open a nice can of worms.

Did I say "he"? Not sure I did. Certainly didn't mean to!!!

I said "chooses self-employment" in the context of choosing to work for self rather than another employer. I said "employee" as that appears to be the current status (allegedly). Not really a contradiction there as such as many people have the same set up.

As earnings are nil then obviously no NI or PAYE is being paid at present.

My issue though is that there are two separate things here:

1) If client is an employee then presumably minimum wage rules apply. However, if they do then that is a matter for someone outside of JC+ to enforce albeit that it looks ludicrous in this context.

2) I see no evidence that RTWC legislation makes any reference to having to earn something at all or there being the penalty of losing RTWC if you aren't earning minimum wage. Leaflets etc. talk of "paid" work but let's not confuse the wording of a leaflet with the actual legislation as DWP etc. have a long history of printing things that occasionally bear no relationship to what the law actually says.

The only definition of "paid" I can see appears to be less than £15k with no minimum mentioned. A possible other logical definition would be 'renumerative work' i.e. work done in expectation of payment. This is not voluntary work but it is work done in expectation of payment. That payment is not at present weekly or monthly but work has been done and payment will be made at some point in the future.

Mike

Yes. I should have said "If your client normally pays Class 1 ...". The company must know (or certainly ought to) whether that would be the case if (s)he was getting paid. If it is the case then I suggest that, under employment law as well as for tax & NI purposes, (s)he is an employee. If so, (s)he cannot at the same time be self-employed in relation to the same work.

However, I do agree with your points 1 & 2 - in particular, the comment about JC+ involving themselves in the minimum wage regulation.

If there are directors then it must be a company. Companies are run by directors and are separate persons in law from the individuals who run them and work for them under contracts of employment. "Firm" in correct leag usage is the same thing as a partnership, which is like proper self-employment with at least two people in charge - the partners.
Employees pay PAYE and Class 1 NICs. Self-employed people pay on a more complicated retrospective assessment and pay Class 2 NICs and class 4 if they make reasonable income - even if they are not working. Employees get SSP and may be able to claim CBJSA and industrial injuries benefits, self-employed people can't. Employees are entiteld to holiday pay, and the national minimum wage, self employed people take what they can make.

Sounds like a dog's breakfast to me: whatever the current issue, he needs to get it sorted out before HMRC catch up with the tax/NI issues!

i agree with ariadne on everything she has said.

and add - an employee of a limited company who also owns the company (by being a shareholder) is nonthe less an employee. the limited company is one legal entity, the employee is another.

defence is was never advised about the posiblity of test trading if was elligible for new deal route. Would have been able to wrk and keep benefits if opened buisness account for a period of time and then sign of protecting client with 104 week link rule and in work tax credits based on net profit which in first yr would be very low.

Hope this helps

A

Hi Mike, I know this is not related to your main point, which I think has been fully answered.

However, I just wanted to point out that the reson your client can't stay on IB under Permitted Work Rules is that they are working more than 16 hours a week, regardless of what they earn.

On your main point I'd just say that, in order to count as paid work, your client must have a real likelyhood of getting paid for their work, not just a hope or desire to make money.

If you have the current issue of the CPAG H/Bk see the final pragraph on page 649 (If you have last years see page 657). I'll paraphrase for brevity: "If your business isn't making money yet, you may count as working in expectation of payment if you are making drawings against future profit (hence the JC+ advice), or if the business is likely to yield profit in future.

HMRC recently had an exercise to query self employed people who were reporting very low earnings. That doesn't mean they were all stopped from getting Working Tax Credit, but it does show that HMRC are concerned that they only pay those who are doing genuine paid work.

I agree with everyone that self employed people are excluded from the NMW, but not from Working Tax Credit.