ESA and ‘volunteering’ at a loss making business

I have a client who claimed ESA in Nov 09. He successfully appealed WCA and HRT decisions but is still waiting to be paid money owing since Jan 10. However, in April 10 he started his own business and did not inform ESA. The business has never made a profit and because he could not afford to pay himself, he is not registered as an employee. Instead, he has been volunteering up to 78 hours per week.

My questions are as follows:
1) On the facts, I think he would be better off registering as an employee and moving onto tax credits. As he is working so many hours, I don’t think it’s possible to argue he’s not fit for work (despite up to date medical certificates). Do you agree?
2) Does this count as ‘volunteering’ for the purposes of ESA as it isn’t really community or charity work, although it is unpaid?
3) What should he do about the money he is due to receive from ESA? Will he need to inform them that there was a change in circumstances from April 10 and risk an enormous overpayment? (I suppose in this case it’s lucky there were so many appeals)

I would really appreciate some help!

Abi

Your query raises a lot of questions.

You say he started a business, but go on to talk about him as an employee. That would imply that there is a limited company which would be employing him. Otherwise he is self-employed.

Is the business ever likely to be viable - is he working in the reasonable expectation of payment? Even if it is not making any money at the moment, if it is a realistic prospect, then he is in remunerative work. If it is a pipe dream, never likely to go anywhere, then he isn’t: there’s lots of case law on remunerative work both on the benefits and tax credits side.

The definition of remunerative work for ESA is “work for which payment is made or which is done in expectation of payment”. Work done where the claimant receives no payment of earnings is exempt if the claimant is engaged by a charity or voluntary organisation, or is a volunteer, and the SoS is satisfied that it is reasonable for the claimant to provide the service free of charge. The commentary on this confirms there are no hours limits.

Might I ask if your client has mental health problems or disabilities? I would be concerned that he is possibly not in touch with reality. This looks outright obsessional.

Thanks for your response.

As you suggested, the business was set up as a private limited company, so he would be employed rather than self-employed. The business is a small shop, and the hours reflect the opening hours, as he doesn’t get help from anyone else because he can’t afford to pay them.

I’m not sure of the long-term prospects of the business, although I know he’s seeking business advice. Unfortunately I think it probably isn’t ‘reasonable for the claimant to provide the service free of charge’. Clearly in this case, if the shop was making a profit he would be drawing a salary. As such, I think there probably is an expectation of payment?

He has arthritis in his knees and finds it difficult to stand. He does not consider himself to have any mental health problems, and didn’t say he’d seen anyone about any mental health issues. I’ve only had one appt with him, but he seemed lucid and extremely organised.

Two pieces of case law that might assist in respect of the income part of the equation are:

R(IS) 5/95 (employee case - no income)
Chief Adjudication Officer v Ellis [1995] CA [R(IS) 22/95]  (s/e case - no income)

The above cases consider “remunerative work” in the context of the expectation of payment element.  In the simplest terms, if someone works but doesn’t do so in expectation of payment, s/he is not in remunerative work.  Depending on all of the facts, it *may* be possible to argue the level of the Company’s business is such that there is no REALISTIC expectation of payment in respect of THAT work; this meaning the clmt is not engaged in “remunerative work”.