Terms & Conditions

[J Cox]

Hi,

(sorry, posted on pre-06 board by mistake, copied again in here)

I have a claim for a person who is a director of a company and he is the sole shareholder. He is paid a low wage with fairly high dividends and then there’s the company profit left over at the end. The wage is approx £5000, the dividends about £3000 and the profit at the end of it all is a further £5000.
The problem I have is how to use this info.

1. Dividends are usually counted as capital as it is income derived from capital (same as interest), however, shouldn’t income derived from disregarded capital count as income? (HB schedule 6 ( 8 ) seems to fit, but only mentions s/e earners, but surely there is an equivalent for directors who solely own a business, can anyone help with the reg for this?)

2. Is the value of the shareholding counted as capital? If so, how are you supposed to value these? If they pay out £3000 a year presumably I could easily justifiably value these as worth more than £16000? This sounds good to me BUT I’d like to see this in black and white in a reg somewhere! Any ideas?

3. How is the company profits treated? Normally I would disregard if these are reasonably low, however, he is the sole owner and so could this be treated as notional income, as it is available immediately upon application? I can’t see how it is fair (I know things are not always fair!) to disregard profits, as you could just make hideously huge profits and not pay yourself anything until you come off benefit, then take the lot in one go.

I know these questions have been asked in a roundabout way before on other posts, but I’ve never seen a definitive answer, and certainly no-one has said what they have actually done in these circumstances.

Any help would be very much appreciated.

Thanks,
Jess.

[petedavies]

I’d certainly treat the dividends as income – your claimant is the sole shareholder – there is no need for dividends. Use R42(2) – claimant applies to claimant, claimant votes claimant payrise at next shareholders meeting.

“Profit” is slightly more problematic. The company can, reasonably, be expected to retain some working capital and funds to cover contingencies which will come from the undistributed profits. How much can only really come from an examination of the accounts.

[Anonymous]

Ahem – speaking as a company diretor, there [i:006312c0b5]is[/i:006312c0b5] a need for dividends…it keeps my tax bill down!

[Anonymous]

But, Andy, you are not claiming HB / CTB! 😉

Or are you??? 😯 8)

😳 Oh, and agree with Pete about treating dividends as income in this case.

[Anonymous]

Sadly I do not qualify for CTB, and can’t get HB because I’m an owner occupier. Being serious, I agree that the dividends could be treated as earnings as this is all available to the director, and a reasonable decision would have to be made about the amount of capital left in the company account.

[J Cox]

OK, thanks for replies so far.
Can I add something else to the mix?

Should I actually be checking that the business account holds the supposed profits then? I haven’t asked for the bank statements thinking that it was not a reasonable thing to ask for, however, one month was provided anyway, and it showed a negligible amount in it.
I guess I now have to go down the route of asking where the profit is being held?
If the profit is not being held within the company then should I treat this as income, even though his accounts show this as still being money held by the company?

The big problem I have with this is the I know DWP guidance is that dividends are capital and not income, but I just think that they’re assuming everyone is honest! Do they even consider this kind of practice goes on? If I count them as income what reg legally allows me to do this (other than the unwritten common sense reg!)?

[Anonymous]

As regards the business accounts, you will have to work out yourself whether these are worth checking. I would certainly not be doing this in every case, but if there seems to be “profit” that is not accounted for then it may be worth doing. If the cash is held in a personal account I think you should have no problem treating it as income, if in the business account I think you would have to ask what it is being held for – income for investment in business, day to day capital to cover expenses may be disregarded, but you would need to dig a bit.

As regards the dividend as income rather than capital, you could try reg 42 – notional income that the claimant could get if he / she was minded to. You can’t write regs that would cover every possible angle and therefore have to extraperate a little.8)

[Author]

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