Share this content

Director (not shareholder) and UC

What are the rules of a non-shareholder employed director with Universal credit?

Didn't find your answer?

I need to know what the rules are with universal credit, for a director who is not a shareholder. 
The support officer from the local job centre is advising our client that they are viewed as self-employed and need to declare the profit from the ltd as their own income because they are a director no matter if they are not a shareholder.  However we cannot find the legislation other than a director/shareholder of a ltd. Can anyone help please? 
Thank you. 

Replies (33)

Please login or register to join the discussion.

avatar
By cohen
18th Jun 2021 13:58

That sounds like fundamentally wrong advice. How can it be his profit if he doesn't own any of the company's shares? His income is limited to whatever he is remunerated for as a director.

Thanks (1)
Replying to cohen:
avatar
By KEVLIV
18th Jun 2021 14:31

Yes absolutely agree with this too, but trying to put this across UC is another hurdle.

Thanks (0)
By Duggimon
18th Jun 2021 14:10

The regulation governing this is UC regulation 77 and, as you say, the job centre have it wrong:

https://www.legislation.gov.uk/uksi/2013/376/regulation/77/made

Suggest you find someone there who knows what they're talking about.

Thanks (1)
Replying to Duggimon:
avatar
By KEVLIV
18th Jun 2021 14:29

Thank you very much. We believe that they got this wrong too. My next question would be:
Where do we find someone who knows what they’re talking about regarding UC???
So far anyone we’ve talked to seems to have their own understanding. The UC support officers at job centre are all very much confusing and confused and if you dare contradicting them, they shut you down.
I’m not sure why they have the word “support” in their job description tbh.

Thanks (0)
Replying to KEVLIV:
By Duggimon
18th Jun 2021 14:38

I think a calm, unconfrontational, but firm letter pointing out the misunderstanding and why these rules don't apply might be the best approach. If it's in writing then they can pass it around, rather than having to pass you or your client around which is much harder, and hopefully get it to someone who can reverse the mistake.

Thanks (0)
avatar
By New To Accountancy
18th Jun 2021 14:23

I once read 'UCD5' for a client and it said on there that if the claimant is running their business through a company, it was treated as self-employment in UC. I think the only bit I remember was that it included a director and where they pay themselves under PAYE.
If your client could ask for the form above, or ask for it through their journal, they should provide a copy.
Fortunately, my client wasn't trading through a company so I never needed to look into it any further, but I definitely remember reading that, because it seemed wrong.
Sorry I cant help you with specifics.

Thanks (1)
Replying to New To Accountancy:
By Duggimon
18th Jun 2021 14:35

The point is that someone who owns and operates their own limited company is, for the purpose of UC treated as if they were self employed, per the link I gave above.

The bit about PAYE is that the profits of the business are added to their PAYE income, effectively putting them in the same position as a sole trader with drawings.

The fact this legislation exists to put limited company owner/directors in the same place as sole traders when it allows the government to use that to pay out less money makes their decision to not apply the same test to the SEISS qualifications somewhat shameful in my opinion.

The legislation literally renders the owner director as self employed for the limited purpose of Universal Credit, but there was apparently no way anyone could see to treat them as self employed for the purpose of grant income.

Thanks (1)
Replying to Duggimon:
avatar
By New To Accountancy
18th Jun 2021 14:43

Thank you for the clarifications Duggimon.

Thanks (0)
Replying to Duggimon:
avatar
By KEVLIV
18th Jun 2021 15:35

Thank you. This director is not a shareholder of the limited company. So the self employment rule shouldn’t apply. So we believe.

Thanks (0)
avatar
By Tax Dragon
18th Jun 2021 14:56

Who is the shareholder?

Thanks (0)
Replying to Tax Dragon:
avatar
By KEVLIV
18th Jun 2021 15:40

It’s a limited company by guarantees.

Thanks (0)
Replying to KEVLIV:
avatar
By Hugo Fair
18th Jun 2021 16:09

So, is your client a member (acting as guarantor)?
And who set-up the company? And appointed the Director?
Your client may after all be "a person (who) stands in a position analogous to that of a sole owner or partner in relation to a company".

On the other hand, we may well have encountered a scenario that I can't find explicitly covered in The Universal Credit Regulations 2013 (and subsequent amendments) ... in which case you are back to asking the claimant's local job centre to provide references for the basis of their determination.

Thanks (1)
Replying to Hugo Fair:
avatar
By KEVLIV
18th Jun 2021 16:15

Thank you. The company was formed with other directors. These are still in office. No shareholders. As it is a limited company by guarantees then there are no distribution of profits.

Thanks (0)
My photo
By Matrix
18th Jun 2021 17:51

I don’t get this at all. Are they saying if someone is a Director of a PLC. so PAYE, then they are self-employed?

Just tell them it is not a PSC.

Thanks (0)
Replying to Matrix:
avatar
By KEVLIV
18th Jun 2021 18:10

Yes this is what UC coach is saying to the client who is a non shareholder of a ltd but a director.
The client has argued this with their UC coach, saying that they are just a director not a shareholder. But the UC coach from job centre insists that since they are a director (whether or not they are a shareholder) they have the status of a self-employed person under UC rules. The issue is that the UC coach has reported this back to UC and they want the non shareholder director (on PAYE) to disclose the company’s profit as part of their income. As the accountant who has been required to do the report on behalf of the client, we are of the opinion that the income or profit or surplus of the ltd has nothing to do with the director who is just an employee of the company. The director has been told that if they are not reporting the company income, they are making a fraudulent disclosure by just reporting their paye income and by September their case will be revised and UC stopped. It does sound crazy, but this is the situation. This particular director works 24 hours per week and was also furloughed during Covid as the business was not able to operate.

Thanks (0)
Replying to KEVLIV:
My photo
By Matrix
18th Jun 2021 19:49

He probably should have not told them he was a Director in the first place.

Thanks (0)
Replying to Matrix:
avatar
By Tax Dragon
19th Jun 2021 07:20

Don't they ask?

What are you suggesting?

If he's a director and they ask if he's a director then does he not have to say he is a director?

He's either due the money or he's not, based on all the facts.

I asked about other shareholders because if, say, the shareholder was a trust of which the claimant was life tenant, then it would make sense to me for the shares to be treated as his for UC purposes. Having looked very briefly at the Regs just now, it appears they take a different approach to what I imagined. Rather than anything that treats a trust as transparent, or spouses as connected, or or or*, there was mention of notional income. Those rules perhaps achieve the anti-avoidance that I had thought there may (and should) be.

As it turns out, not holding shares may be a red herring. There are no shares. The other directors don't have shares either. OP really should have said that up front.

Anyway the questions appear now to include whether the director is appropriately paid for his work and what happens to (who can receive) profits retained in the company.

*You know, the sort of things tax law normally does.

Thanks (1)
Replying to Tax Dragon:
My photo
By Matrix
19th Jun 2021 08:27

I have never seen a UC form but the claimant has complicated things for themselves as they think he has a PSC so I wonder why someone who is wholly PAYE has ended up in this position.

Anyway I don’t understand how an employee on furlough is entitled to UC and how he will ever pay this poster if he can’t feed his family.

He can always resign.

Thanks (0)
Replying to Matrix:
avatar
By Hugo Fair
19th Jun 2021 11:39

How, or indeed whether, he will ever pay this poster is not our concern.

But "how an employee on furlough is entitled to UC" is simple, if you understand the concept of WTC (Working Tax Credits as were) - now subsumed into UCs.
Irrespective of whether you like the logic, they were introduced (for political reasons) to provide people in poorly-paid work with additional benefit that left them no worse off in total than those receiving unemployment benefit.

So if you can receive UC on top of your (poorly paid) wages, then naturally you can continue to receive UC on top of the replacement for your wages (furlough pay) ... indeed if you being furloughed results in less pay then your UC should increase.

I won't be responding to your other comments.

Thanks (2)
Replying to Matrix:
avatar
By New To Accountancy
19th Jun 2021 12:39

I used to receive tax credits and then universal credit because my child care costs were much higher than my wage (2 children).

Resigning would have been much easier for me and my family and I had to tell myself everyday it'll all be worth it in the end, especially when my wage was £200 less than my childcare costs, even more during the 6 weeks holidays/term time.

I just couldn't give up and rely on the 'system' after I no longer needed help with child care.

Having personal experience enabled me to help clients and understand their position.

I was not on furlough, I carried on working and I worked nights because I had no childcare.

I fight more to work, than I ever would not to.

Thanks (1)
Replying to New To Accountancy:
My photo
By Matrix
19th Jun 2021 13:54

Completely appreciate what you are saying. I meant resign as Director due to the threat of stopping his UC until the red tape is sorted, which is what this thread is about.

Thanks (1)
Replying to Matrix:
avatar
By KEVLIV
19th Jun 2021 20:55

Thank you for your input. I believe that the job is linked with the office. No office no job. This has been put to the client. It just seems to be a very tricky situation as far as UC is concerned. We can’t see the problem here as this client should be able to continue receiving UC as they are employed. This was not an issue when they were receiving working and child tax credits. They were switched to UC just before Covid-19, and are now in a very difficult position, in trying to argue that the rules of self employment does not apply to them as they are not owners of the ltd. UC doesn’t seem to understand that a director is not automatically entitled to shares. I mean, I was in this position several years ago, when I was an employed director without entitlement to shares. We have other clients in this position as well, except for receiving UC. In the same manner, we have shareholders who are not directors. We just find it baffling that UC cannot comprehend or make allowances for various situations and seems to throw everyone in the same category if they are in office. I’m sure we will be able to find a suitable outcome.

Thanks (1)
Replying to Matrix:
avatar
By New To Accountancy
20th Jun 2021 09:35

Very true, I did go off track a little, I suppose.
I just didn't agree with your prior comments, spoke up about my experience and then thought 'hang on, what's my comment got to do with it?'.
I did hope you wouldn't notice as I'd past the 30 minutes so couldn't edit, but you did, my bad.

Thanks (0)
Replying to New To Accountancy:
My photo
By Matrix
20th Jun 2021 17:59

No problem. It appears that Kev has actually suggested resignation to his client so I don’t know why everyone had such an issue with my saying it.

Thanks (2)
Replying to New To Accountancy:
avatar
By KEVLIV
19th Jun 2021 20:37

Thank you. I understand exactly what you have been going through. Not all have the possibility to start with a high salary. Thank you for your post.

Thanks (1)
avatar
By paul.benny
18th Jun 2021 18:09

There's a formal process called Mandatory Reconsideration.

Simply write, within a month of the original decision asking them to reconsider. You should (briefly) state the grounds for the request - maybe referencing the relevant regs as mentioned by another poster.

There is a further process if you've missed the one month deadline.

Details on gov.uk here
https://www.gov.uk/government/publications/challenge-a-decision-made-by-...

Thanks (1)
blue sheep
By Nigel Henshaw
19th Jun 2021 09:12

One of our clients found that the CAB were extremely helpful with a UC dispute, referring them to a specialist at the CAB, very quick response too

Thanks (0)
avatar
By Paul Crowley
19th Jun 2021 12:46

How many directors are there?
If he is sole director he controls day to day running of the company
He controls his small salary with once a year huge bonus

Thanks (0)
Replying to Paul Crowley:
avatar
By KEVLIV
19th Jun 2021 20:35

There is a board of directors. The client is not a sole director. This director is only able to work between 16 to 24 hrs per week. Hence UC.
Thank you for your post.

Thanks (0)
Replying to KEVLIV:
avatar
By KEVLIV
19th Jun 2021 20:38

Just to add. This client doesn’t control their salary btw.

Thanks (0)
Replying to KEVLIV:
avatar
By Tax Dragon
20th Jun 2021 07:24

That may or may not answer the first of my two secondary questions: whether the director is appropriately paid for his work.

But that's not what lays behind the challenge you are facing.

Reg 77 makes no mention of shares. I don't see why it cannot apply to a company limited by guarantee just as it can to a company limited by shares or indeed to a company not limited at all. So I ask my second secondary question again: what happens to (who can receive) profits retained in the company?

You don't have to answer here, but I think you may need to address this issue in the letter Duggimon suggested you write.

Thanks (0)
Replying to Tax Dragon:
avatar
By KEVLIV
20th Jun 2021 09:14

Thank you for your comments. The surplus gets reinvested in the company to enable charity work.

Thanks (0)
Replying to KEVLIV:
avatar
By Tax Dragon
20th Jun 2021 09:21

Good stuff.

Thanks (0)
Share this content