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Forum Home  →  Discussion  →  Universal credit administration  →  Thread

Self-employment and treatment of capital

Chrissum
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WRAMAS, Bristol City Council

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Joined: 24 August 2017

Hi Folks. Today I have been mostly vexed by a client who operates on a freelance basis. She earns around £19K per year. She became ill and had to claim UC. However, she had her claim stopped and later reduced (she’s a bit grey about this) on the basis of excess capital, which she had derived from her work. She was upfront about this capital at the start of her claim in that most of it had been derived from her work and had been put aside to pay her tax / NI returns at the end of the financial year, when she states she receives her bill from HMRC. Unfortunately this capital was in her personal account as she does not have a separate business account. The Department are also not accepting that she is in gainful self-employment at the moment, though she has not closed her business down.
I’ve looked at the Regs and the ADM guide and have come to the conclusion that the Department are probably correct to treat this capital as hers unless it can disregarded as a “business asset”. She did not earn anything whilst claiming UC so there are no allowable deductions in the relevant assessment periods.
Is this worth challenging on the grounds that as some of the capital is derived from the business that that amount (about £7K) should be treated as business cash, and therefore an asset and disregarded? Or is it just a case of hard cheese for the self-employed (again).
Comments and help greatly appreciated.

HB Anorak
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Benefits consultant/trainer - hbanorak.co.uk, East London

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It’s her money, plain and simple.  This is no different from an employed earner saving his/her salary and letting it pile up in a bank account.

It wouldn’t make any difference if she kept the money in a separate business account - it’s her money.  I am self-employed and I have a business bank account.  The name on the account is my business name.  But it’s mine, I can do whatever I like with it.

Business assets are things that you own which have a capital value but the value is disregarded because the items are used for business purposes - a combine harvester or a freehold shop premises for example.

past caring
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Welfare Rights Adviser - Southwark Law Centre, Peckham

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Further to the above, although it is common for the self-employed to pay tax and NI in one go after submitting the annual return, it is perfectly possible to arrange to pay that liability by weekly or monthly instalments. Any such payments made during an assessment period are deducted from earnings. So taking a hit is not inevitable.

Va1der
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Welfare Support Worker - Community Renewal Edinburgh

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She earns £19k a year, and has set aside £7k to pay taxes? That doesn’t add up.

Assuming the savings are to pay taxes from last year (if not, the amount saved would be even more ridiculous), she could take steps to pay them asap, heck she could have done so months ago.

She could also have spent the money to build business assets (and reclaimed some from reduced tax), but if she’s just been saving the money I don’t see how she could make any other argument than that it is just personal savings.

I’m all for blaming DWP, but it sounds more like your client hasn’t done their due diligence with regards to her self-employed status.

 

[ Edited: 29 Nov 2019 at 09:44 am by Va1der ]
Chrissum
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WRAMAS, Bristol City Council

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Thanks both. That was what I thought. I’d picked up on one of the examples in the ADM (H2022) about “cash in the bank” being an asset and wanted to float this by the hive to see what this might mean. Thinking on it, this is a bit of an odd entry as sched 10 appears to indicate that the cash would need to be “wholly or mainly for the purposes of the trade, profession of vocation”. Loosely speaking it is, but as rightly pointed out, it is also her cash to do with as she pleases and it would be difficult to argue otherwise. I guess the “cash” may be referring to e.g. floats, investments or loans which are much easier to attribute to the business rather than cash (presumably derived from income) put aside to pay bills. Deductions would not help her in this case as the earnings were unfortunately not derived during any of the assessment periods, but it is something for her to bear in mind once she is fit to resume.
Once again, many thanks.

Chrissum
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WRAMAS, Bristol City Council

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Va1der - 29 November 2019 09:42 AM

She earns £19k a year, and has set aside £7k to pay taxes? That doesn’t add up.

Assuming the savings are to pay taxes from last year (if not, the amount saved would be even more ridiculous), she could take steps to pay them asap, heck she could have done so months ago.

She could also have spent the money to build business assets (and reclaimed some from reduced tax), but if she’s just been saving the money I don’t see how she could make any other argument than that it is just personal savings.

I’m all for blaming DWP, but it sounds more like your client hasn’t done their due diligence with regards to her self-employed status.

Thanks Va1der. I think she just didn’t expect her illness to take over her life. This was a helpline enquiry and she was a little grey about her figures. Though she is self-employed, she sees herself as more of a freelance consultant and prefers to wait on the HMRC billing her before paying up. The points you make are all valid and could have been pointed out to her if she had a decent accountant or adviser. As stated. I thought the DWP were correct (they sometimes are!) but found the entry in the ADM “interesting”. This is pretty much a reverse notional capital situation and I wasn’t sure if there was any mileage in arguing this. Clearly there isn’t and my initial gut reaction is almost certainly correct (but sometimes I wish it wasn’t)!