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Hive mind query about an income type

 

Gareth Morgan
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I was at a conference yesterday and wandering round the exhibition I came across a few stands offering employers a service that I haven’t seen before.

It’s a kind of budgeting service that allows employees to get money before /after their normal pay day.  Summarised as flexible pay.

I’m trying to decide what, and when, this is for benefit purposes.  It’s difficult because, I suspect, the descriptions by the suppliers may not be the actual legal definition applying to the money.  Some of the things described by the suppliers include:

“No loans, no credit, no high interest charges, just improved financial wellness”
“Not a loan, no interest”
“Instant access, transfer your wages directly to your current account in seconds”
“Track what you earn and pay yourself when you want”
“Gives workers immediate optional access to a portion of their earned salary”
“.... advances the money, no cash flow impact to the employer”
“No interest just a small fee”
“Cash out monthly earnings as and when they choose to instead of waiting for payday”
“Reduce the stress of debt by setting your payment schedules. Know you will have money in your accounts at the right time, each month”
“allows you to control what money arrives into your accounts and when.”
“enables employers to switch from weekly or fortnightly payrolls to a single, monthly payroll without impacting on the frequency employees get paid.”

That last one has some interesting Universal Credit implications.

Basically, if a chunk of money arrives in someones bank on a particular day, under these schemes, is it   earnings, other income, capital, a loan, an advance - or what?  How will it be treated?

     
ClairemHodgson
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Gareth Morgan - 08 November 2018 03:41 PM

Basically, if a chunk of money arrives in someones bank on a particular day, under these schemes, is it   earnings, other income, capital, a loan, an advance - or what?  How will it be treated?

i should have thought income, since that is what it looks like and is meant to be.  should be very surprised if anyone decided otherwise.

and, frankly, there has to be a catch for relevant employees

     
Paul_Treloar_AgeUK
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Section 7(3) of Income Tax (Earnings and Pensions) Act 2003 probably a good place to start, as this defines earnings.

Even aside from that, can’t see how money drawn down that is contingent on wages could be anything other than earnings, excepting standard allowances like expenses etc.

     
John Birks
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Welfare Rights and Debt Advice, Stockport Council

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ClairemHodgson - 08 November 2018 04:43 PM
Gareth Morgan - 08 November 2018 03:41 PM

Basically, if a chunk of money arrives in someones bank on a particular day, under these schemes, is it   earnings, other income, capital, a loan, an advance - or what?  How will it be treated?

i should have thought income, since that is what it looks like and is meant to be.  should be very surprised if anyone decided otherwise.

and, frankly, there has to be a catch for relevant employees

https://www.even.com/how-even-makes-money

 

     
Gareth Morgan
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Paul_Treloar_AgeUK - 08 November 2018 04:46 PM

can’t see how money drawn down that is contingent on wages could be anything other than earnings, excepting standard allowances like expenses etc.

My immediate thought was that it should be treated as a loan, that would then be repaid from actual pay, after PAYE and NI has been applied.  All these companies though (even though FCA approved, they say) are adamant that it is not a loan.  If it is earnings then tax and NI ought to be applied surely? 

For benefit purposes, the easiest thing is if it’s capital in some form.  If it isn’t capital then how should it be treated / declared?  If I’m claiming HB on the basis of monthly income, or income averaged over a period then it probably isn’t too important, but if I use this facility to move outside the averaging period, what then?

If I’m on Universal Credit and ‘think’ that I’m still being paid weekly but my employer is using this form to make RTI returns to HMRC on a monthly basis (hopefully they will have told me but they might think it’s only an internal accounting move)  then It could have really serious consequences as described in https://benefitsinthefuture.com/universal-credit-and-patterns-of-earning/ .

 

     
Jeremy Barker
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It appears to me these schemes are in effect a “buffer” account the employer pays into when paying the employee and the employee can transfer amounts from this account to their normal bank account either before or after the employer has made the payment and possibly at different intervals to the employer paying in.

I expect that money in these schemes would be considered money held on trust for the employee therefore would be treated as capital. That could cause a problem if the employee is allowed to build up a large credit balance but they may not allow that to happen. I would also expect there’s a debit (“overdraft”) limit to avoid an employee ending up with a persistent debt.

As far as the employer paying the employee is concerned I would expect them to report to HMRC via RTI the amount paid into the scheme when they make the payment and that should be used as the employee’s income if they claim UC. When the employee takes transfers to their normal account is, I think, completely irrelevant. When you look at things overall what the DWP is really concerned with is when money passes from the employer’s control to the employee’s control. If an employer used these scheme to run a monthly payroll while allowing employees to have receive money weekly or fortnightly it could help some people to budget more effectively while avoiding the problems of variable income in UC assessment periods. That however presumes than an employer paying at intervals other than monthly wants to switch to a monthly payroll (which is the government’s “solution” to the problems with UC caused by non-monthly pay).

It really isn’t that different from what I did in the past when I had multiple current accounts with my pay put into one and direct debits on another - transferring money between them as needed - and should be treated in the same way.

     
John Birks
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Jeremy Barker - 09 November 2018 02:52 PM

It appears to me these schemes are in effect a “buffer” account the employer pays into when paying the employee and the employee can transfer amounts from this account to their normal bank account either before or after the employer has made the payment and possibly at different intervals to the employer paying in.

I expect that money in these schemes would be considered money held on trust for the employee therefore would be treated as capital. That could cause a problem if the employee is allowed to build up a large credit balance but they may not allow that to happen. I would also expect there’s a debit (“overdraft”) limit to avoid an employee ending up with a persistent debt.

As far as the employer paying the employee is concerned I would expect them to report to HMRC via RTI the amount paid into the scheme when they make the payment and that should be used as the employee’s income if they claim UC. When the employee takes transfers to their normal account is, I think, completely irrelevant. When you look at things overall what the DWP is really concerned with is when money passes from the employer’s control to the employee’s control. If an employer used these scheme to run a monthly payroll while allowing employees to have receive money weekly or fortnightly it could help some people to budget more effectively while avoiding the problems of variable income in UC assessment periods. That however presumes than an employer paying at intervals other than monthly wants to switch to a monthly payroll (which is the government’s “solution” to the problems with UC caused by non-monthly pay).

It really isn’t that different from what I did in the past when I had multiple current accounts with my pay put into one and direct debits on another - transferring money between them as needed - and should be treated in the same way.

Nope.

It’s different.

https://www.nytimes.com/aponline/2018/11/07/business/ap-us-on-the-money-payday-lending.html

It is possible (or likely) that the ‘pay off’ from the investment is the data produced.