Self-employment - treatment of capital for HB

Client - children’s author - earnings from writing children’s books, and occasional educational workshops.
Usually gets lump sum payments, such as advances or contractual payments, and the workshop payments are often paid in large sums at the end of a run of sessions. Income is quite sporadic, and insecure, so she holds onto the income as security as her income is insecure.

As per self-employed rules her income is calculated on the previous year’s accounts (only c £9k for last accounts). The issue is with the treatment of the lump sums payments. The council have told her to report monies in bank accounts that take her over the lower capital limit. I cannot see anything in the regs or guidance to show that the payments - effectively income - should not/cannot be treated as capital. But it does seem like both S/E income is being counted and tariff income from the capital generated by that income.

I would welcome any advice/thoughts that might help.

Thanks in advance

That is exactly how benefits work. Amounts received as income but which remain unspent become capital and subject to tariff income. There is in effect double counting. The only way round this, as far as I am aware, is for the s/e person to set up a company and have their income paid into the company. They can then take advantage of the disregard in reg 49(6) of the HB regs. But of course setting up a company may have adverse income tax consequences so your client neds to consult an accountant before going down that road.

The other option is to spend the money and ensure the capital remains below £6k.

I know that the nature of the work means payments might fluctuate both in regularity and amount, but when she is paid it isn’t as if it’s a bolt from the blue. She will contract in advance for how much advance she will receive and when she will receive it and the same for contractual payments. Similarly, she will charge a certain amount for each workshop session, will know how many there are going to be and thus when they will end and roughly when she will be paid. Whilst I appreciate the desire to retain a certain amount as a cushion, it ought to be possible to manage things with a bit of organisation….

Thanks for the replies Paul and Past Caring. The client has an accountant so she could get advice about the company option. Part of the problem has been her anxiety and tendency to hold onto the capital, for example even though she needs to replace expensive items like a mattress, so I’ll try to encourage her to plan more around spending her income. The double-counting is unfair but as you say Paul, it is how it is.