Forum Home → Discussion → Universal credit administration → Thread
When is self employed not self employed
I have a client who is being treated as self employed however he is the director or a limited company that is still in it’s start up period.
As such he should not be treated as being self-employed however they have booked him a s/e interview.
The other issues is that he is not taking a wage at the moment as the company has only been going for a month or two. From the information he has provided it looks like it’s a genuine viable business and he may not even be on UC for much longer once he takes a wage.
But will they treat him as nil income with no work seeking requirements in the meantime? There’s guidance for the s/e and for employed earners but nothing about company directors.
In my Housing Benefit days I would have asked for company accounts to demonstrate the business was not making a profit.
he’s only employed if he has an employment contract with the limited company. and he probably wont have that. company directors can be self employed. i think. but i don’t think you can assume he’s not s/e in the circs. (i’m not an employment lawyer, however; and the dwp work coach is CERTAINLY not an employment lawyer….)
A company director is an Office Holder. Whether they are an employee or self-employed is another matter and as usual the answer for employment law (where they might be a worker) will not necessarily be the same as in tax law and social security law.
Under legacy benefits (where establishing whether a person was “employed” or “self-employed” was rarely too important), a director’s earnings were treated as those of an employed earner (see DMG 26048 and chapter 26 generally).
Under UC (where there is a massive difference in treatment between the employed and self-employed), a director is treated as an employed earner by default but can be treated as self-employed if regulation 77 of the Universal Credit Regulations 2013 applies.
Essentially reg 77 is intended to catch one-man businesses who happen to run as limited companies rather than as sole traders. Where a person, as a director or otherwise, is in a position analogous to that of the owner of the business, the reg applies. The effect of the reg is that (a) the company’s capital is treated as belonging to the claimant (b) the company’s earnings are treated as the claimant’s self-employed earnings and (c) the MIF rules apply.
In other words, the “corporate veil” is lifted entirely and your client is treated in exactly the same way as he would be if he were a self-employed sole trader.
See also ADM Chapter H4 for some guidance.
[ Edited: 20 Mar 2018 at 09:27 pm by Elliot Kent ]In other words, the “corporate veil” is lifted entirely and your client is treated in exactly the same way as he would be if he were a self-employed sole trader.
good lord! thus completely undermining the whole point of limited companies.
Whilst I can see WHY they would do this, it is wrong in principle (and you can bet no one twigged when the regs etc were going through).
OK that’s really helpful as there are two directors in the business and neither are currently drawing a wage as it’s not currently making a profit. So they couldn’t apply Reg77 in this instance. I think my client will be the one that goes on the payroll as soon as it starts to run in the black anyway so he would be treated as an employed earner. I wonder what they will say at the s/e appointment they are insisting on carrying out.
OK that’s really helpful as there are two directors in the business and neither are currently drawing a wage as it’s not currently making a profit. So they couldn’t apply Reg77 in this instance. I think my client will be the one that goes on the payroll as soon as it starts to run in the black anyway so he would be treated as an employed earner. I wonder what they will say at the s/e appointment they are insisting on carrying out.
Sorry but the provisions apply equally in respect of an arrangement which is “analogous to a partnership” so having a second director probably doesn’t help.
I think that - at least during the start up period - it is in your client’s interests to be treated as self-employed because if he is treated as employed and earning £0 he will be subject to maximum conditionality - which may well mean he doesn’t have the time to run his business.
He won’t have a MIF for the first 12 months after the business starts.
That’s true.