Forum Home → Discussion → Universal credit administration → Thread
How are dividends calculated under UC?
I have a client who has Prostate Cancer. He is going onto SSP. His
partner is self employed and earns £8500 per year. She also pays dividends
back into the company each year to the value of £5,500.
My question is:- how are dividends calculated for Universal Credit?
I have a client who has Prostate Cancer. He is going onto SSP. His
partner is self employed and earns £8500 per year. She also pays dividends
back into the company each year to the value of £5,500.My question is:- how are dividends calculated for Universal Credit?
A lot of information is missing from your question. In particular what is the exact relationship between “the company” and your client and his partner. Where does her £8,500 a year income come from?
If his partner really is self-employed (would the DWP agree she is?) she will be hit by the MIF. If she works for the company she is almost certainly not self-employed, although she may be an office holder - a company director or a company secretary. A director of a company normally cannot be paid as self-employed for any work they do for the company - they would be an employee and, if they are a shareholder, also paid a dividend.
Saying “she also pays dividends back into the company” makes absolutely no sense at all. Is she receiving a dividend payment from the company? To do that she must be a shareholder and then you need to consider the value of her shareholding because it’s capital. It is unlikely to be considered to be exempt as a business asset - that’s aimed at people who .
It might be that the shareholding and dividends arising will cause problems with the capital limit for UC (£16,000), especially as the only mention of dividends in the UC regulations is in reg. 72(3) which says: “Where a person’s capital is treated as yielding income, any actual income derived from that capital, for example rental, interest or dividends, is to be treated as part of the person’s capital from the day it is due to be paid to the person.” As well as the dividend increasing the capital it also increases the tariff income from the capital.
If his partner really is self-employed (would the DWP agree she is?) she will be hit by the MIF. If she works for the company she is almost certainly not self-employed, although she may be an office holder - a company director or a company secretary. A director of a company normally cannot be paid as self-employed for any work they do for the company - they would be an employee and, if they are a shareholder, also paid a dividend.
I don’t think this is necessarily correct.
See https://www.gov.uk/self-employment-and-universal-credit
“Everyone claiming Universal Credit needs to report their self-employed earnings at the end of each monthly assessment period. This includes company directors, even those paying themselves by PAYE.”
This is from the public site which I know is often over simplified and I haven’t tracked it back to more detailed information. I can’t see how it could possibly apply to all directors purely from a practical point of view for large companies but I can see the logic for smaller companies with director owners to avoid manipulation of pay and dividends while locking value into the company.
On this basis the PAYE and dividends are largely irrelevant. Claimant has to provide monthly details of all company income and expenditure on a cash accounting basis, the difference will be the profit divided as appropriate between business owners. As the PAYE and dividend payments vary the profit will also vary but the overall claimant income is going to be broadly similar (possibly subject to some tax adjustments which I haven’t thought through).
[ Edited: 26 Feb 2019 at 08:52 pm by Ianb ]I can’t see how it could possibly apply to all directors purely from a practical point of view for large companies but I can see the logic for smaller companies with director owners to avoid manipulation of pay and dividends while locking value into the company.
UC Reg 77 deals with this: DWP treats company owner-directors as if they were self-employed for UC purposes if it considers the company is analogous to self-employment. There is a similar rule in HB which is frequently debated among local authorities, although the HB rule only applies for the purpose of valuing shares whereas UC goes all the way and treats the person as self-employed completely. Relevant factors might include:
- other than the “good will” existing in the work done by the owner/director, does the company have any significant assets?
- if the claimant were to leave, would the company be viable without him/her?
- are there any proper employees (as distinct from the claimant and often their partner)?
That additional information is useful and I apologise for not being aware of reg 77. My reply was to a degree based on my background as an employment lawyer when working directors can often claim unfair dismissal or redundancy if they have to depart from their companies. Also tax law generally doesn’t allow directors to be self-employed. That said a surprising number of shareholder-directors of small companies consider themselves “self-employed” even when they aren’t.
This is yet another example of where, by having seemingly minor but actually significant differences to other law, UC makes things far more complicated than they probably need to be. In this case it says that some people are treated as self-employed even when they aren’t.
Having read reg.77 of the UC regs I can see there is some semblance of logic when dealing with a one-person company (although paragraph 77(5) excludes some), but where on earth is the line drawn when the question is whether the claimant “stands in a position analogous to that of a … partner”? I can see that perhaps a smallish business with a handful of shareholder-directors and employing a few non-directors might be seen to be like a partnership but there’s no bright line which shows when that stops and it becomes a “normal” company where working directors are clearly employees.
[ Edited: 27 Feb 2019 at 10:20 am by Jeremy Barker ]Having read reg.77 of the UC regs I can see there is some semblance of logic when dealing with a one-person company (although paragraph 77(5) excludes some), but where on earth is the line drawn when the question is whether the claimant “stands in a position analogous to that of a … partner”? I can see that perhaps a smallish business with a handful of shareholder-directors and employing a few non-directors might be seen to be like a partnership but there’s no bright line which shows when that stops and it becomes a “normal” company where working directors are clearly employees.
Bizarre really, given that there is also an LLP - limited liability partnership - which is analogous to a limited company but for partnerships (which is why its used by solicitors) but different
It rather defeats the object of people setting up as a limited company if the DWP can wholly ignore all that.
And were it to come to a dispute between one set of laws and the other ?
quite what a tribunal judge would make of it all is a whole other ball game, of course. but you can easily see that two different tribunals (say, employment, and social security) could come to wholly different conclusions on the same set of facts. and that shouldn’t really happen.
. She also pays dividends
back into the company each year to the value of £5,500.
also, to say, agree with the other poster - this does not happen, makes no sense.
a company pays dividends to its shareholders, not the other way round!
a director has a director’s loan account - which i think is used as a vehicle to pay directors who are also shareholders, who are in a different position from directors who are merely employees without shares
so you need more clarity on that.
I can’t see how it could possibly apply to all directors purely from a practical point of view for large companies but I can see the logic for smaller companies with director owners to avoid manipulation of pay and dividends while locking value into the company.
UC Reg 77 deals with this: DWP treats company owner-directors as if they were self-employed for UC purposes if it considers the company is analogous to self-employment. There is a similar rule in HB which is frequently debated among local authorities, although the HB rule only applies for the purpose of valuing shares whereas UC goes all the way and treats the person as self-employed completely. Relevant factors might include:
- other than the “good will” existing in the work done by the owner/director, does the company have any significant assets?
- if the claimant were to leave, would the company be viable without him/her?
- are there any proper employees (as distinct from the claimant and often their partner)?
I think the rules in UC are simpler.
For housing benefit, LAs are allowed (but not required) to treat such companies in this way. They therefore take into account the factors you mention in the decision-making process (as you have explained to me in the past!).
For UC, there is no discretion, and all that is required is ownership and influence. See the ADM H4362-H4363.
Of course, the MIF will only apply if there is substantial involvement in the work done by the company.
My client is considering a backdated PAYE RTI submission at the end of the financial year paying a salary under the NI and pensions threshold to use up his tax allowance and mitigate corporation tax as PAYE is tax deductible.
He will not actually receive any payment as it will be credited to the DLA and drawn when the company is in a position where it can make the payment.
He had a period of UC over the 18/19 tax year.
By putting this through RTI, is the DWP likely to go back over the period that UC was payable and raise an overpayment?
It is my understanding that they can only treat money received in an assessment as income but he is concerned they are going to ask for everything to be paid back.