Client on JSA/income support

PsychePsyche Well-KnownRegistered Posts: 187
Hi all,

I know the above is the last kind of client we want (haha!) but I have some friends who have been in the situation where they are unemployed and receiving benefits, but then do small amounts of freelance work. This causes all sorts of problems with their benefits and tends to put them into nightmare situations dealing with HMRC and the benefits office, etc.

I'd like to be able to give them some advice, but I really know nothing about the benefits system. For instance, if they were to set up a one-person limited company and invoice for the freelance work that they do, and pay themselves in dividends, how would this dividend income affect their benefits claims?

If anyone has expertise in this area and wouldn't mind giving me some pointers I'd very much appreciate it.

Thanks!

Comments

  • MonsoonMonsoon Font Of All Knowledge FMAAT, AAT Licensed Accountant Posts: 4,069
    Hiya

    Having experienced this first hand for 2 years, I know what a minefield it can be and wish there was more I could do to help - my experience is now somewhat outdated.

    However, my outdated info is as follows:

    JSA (I know nothing about IS):

    If self employed - they fill in a form B6 (? used to be I think) which says how many hours they worked and what they earned [profit, not turnover!!]. It was my little challenge every fortnight to make a loss (which is what attracted me to my current career!). You can earn either £5 or £10 a week before they start docking your benefit (e.g if it's £10 [which i think it is now] and you earned £25 that week, they would dock £15 from your benefits]. If you work more than 16 hours a week you aren't entitled to JSA and will have to cease your claim (only to start it up again the following week if you work under 16 hours!!!!)

    Note: depreciation doesn't count (put fixed assets in as an expense or they won't allow anything for it!), and they won't let you carry forward a loss from last week against a profit from this week. They are more about income and expenditure than P&L on an accruals basis.

    The benefit rules bear little resemblance to the tax rules!

    If employed (and as a director of Ltd Co you are employed) then again, hours worked is hours worked (even voluntary work counts towards the number of hours worked a week).

    I'm unsure on the dividends. Benefit people would likely see it as payment for work done (even though it technically isn't), however divs are investment income and I can't remember how interest income affects claims (I don't think it does). I'd be inclined to say "I worked 5 hours for X Ltd and received no wages. I also received investment income of £x" I would also declare that the investment income was from the same company, just in case there is some benefit law quirk.

    Remember if it's more than 16 hours worked a week, JSA entitlement goes ,and WTC can be claimed BUT in order to claim the hours worked from a Ltd Co you would have to be being paid Salary at NMW. Div income is "other income" for WTC purposes (ignore the first £300 of all other income, declare the rest).

    I have no idea about income support but I think hours worked can cause a problem with it.

    Hope that helps. It's a complete minefield and what's worse, the benefits people aren't really that well equipped to deal with folk who work for themselves.
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