Does the weekly earnings limit include shareholder dividends? Would a tax refund affect ESA?

lighthouse

Hello 

I get ESA contributions based and I'm in the support group. ESA told me there is a weekly earnings limit. Does that include shareholder dividends? 

Would a tax refund affect the ESA claim?

calcotti

Dividends and tax refunds are not earnings.

helentt

Hello, I find myself in a similar situation. I am in the support group on contribution (new style) ESA. I cannot find any documentation regarding LTD company Director dividends and whether they would count as income. Can anybody help? Many thanks. 

lighthouse

I would also like to know how you actually inform ESA about your earnings and how often you should do it. 

helentt

I think it’s initially and then if anything changes. Maybe someone with better knowledge can advise for sure.

calcotti

lighthouse said:

I would also like to know how you actually inform ESA about your earnings and how often you should do it. 

Before doing any work you should inform DWP by completing a PW1 form. If, subsequently, there are changes to the earnings, they should, I think, be updated.
https://www.gov.uk/government/publications/employment-and-support-allowance-permitted-work-form/permitted-work-factsheet

There are now two threads running on the question of dividends for owner-directors. Dividends are generally treated as capital but lighthouse points out that this appears to allow circumvention of the permitted work earnings limit by paying dividends. I don’t have a response to this. Logically that should not be possible but I haven't found what would prevent  it - but I may be missing something. Obviously the 16 hour limit still applies regardless.

UC limits scope for this kind of manipulation by treated directors as self-employed and basing the UC entitlement on business income and expenditure but ESA doesn’t do this. 

May also be worth noting the following in respect of the original question. A tax refund is treated as capital for ESA but for UC is treated as earnings if the refund relates to a tax year in which the claimant was employed or self-employed.

Relevant DWP guidance for new style ESA is here https://www.gov.uk/government/publications/advice-for-decision-making-staff-guide
Chapters V1 to V8

For old contribution based ESA the guidance is here 
https://www.gov.uk/government/publications/decision-makers-guide-vols-8-and-9-employment-and-support-allowance-staff-guide

calcotti

Think I’ve found it (for new style ESA)
https://assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/file/881138/admv4.pdf

V4063 The income of a director can include
1. payments for services as a director or any other employment with the company
2. share dividend
3. debenture interest.

This is not as clear as I would like in that it doesn’t explicitly say that all of these forms of income are to be treated as employed earnings but I infer that is the intention from the fact it is in the employed earners chapter.

(Subject to the usual qualifier that DWP guidance is not always legally correct.)

helentt

Thank you @calcotti it seems that my instinct was correct that any dividends would be seen as income. Thanks for finding the relevant document!

lighthouse

calcotti said:

lighthouse said:

I would also like to know how you actually inform ESA about your earnings and how often you should do it. 

Before doing any work you should inform DWP by completing a PW1 form. If, subsequently, there are changes to the earnings, they should, I think, be updated.
https://www.gov.uk/government/publications/employment-and-support-allowance-permitted-work-form/permitted-work-factsheet

There are now two threads running on the question of dividends for owner-directors. Dividends are generally treated as capital but lighthouse points out that this appears to allow circumvention of the permitted work earnings limit by paying dividends. I don’t have a response to this. Logically that should not be possible but I haven't found what would prevent  it - but I may be missing something. Obviously the 16 hour limit still applies regardless.

UC limits scope for this kind of manipulation by treated directors as self-employed and basing the UC entitlement on business income and expenditure but ESA doesn’t do this. 

May also be worth noting the following in respect of the original question. A tax refund is treated as capital for ESA but for UC is treated as earnings if the refund relates to a tax year in which the claimant was employed or self-employed.

Relevant DWP guidance for new style ESA is here https://www.gov.uk/government/publications/advice-for-decision-making-staff-guide
Chapters V1 to V8

For old contribution based ESA the guidance is here 
https://www.gov.uk/government/publications/decision-makers-guide-vols-8-and-9-employment-and-support-allowance-staff-guide

Does ESA (contributions based) take into account the money a limited company director receives personally from the business via PAYE and dividends or does ESA take into account the business' income and expenditure like universal credit does?

For example: if you pay yourself a small salary (below ESA weekly earnings limit) but have surplus money in the limited company that you keep in the company, if it resulted in zero UC for that assessment period, would ESA still be payable? I mean to ask would ESA take into account the money you leave in the company eg to cover future salary, expenses etc in the quieter months. 

I'm really struggling to get my head around the UC and ESA rules. 

calcotti

lighthouse said:

calcotti said: Relevant DWP guidance for new style ESA is here https://www.gov.uk/government/publications/advice-for-decision-making-staff-guide

Chapters V1 to V8

For old contribution based ESA the guidance is here 
https://www.gov.uk/government/publications/decision-makers-guide-vols-8-and-9-employment-and-support-allowance-staff-guide

Does ESA (contributions based) take into account the money a limited company director receives personally from the business via PAYE and dividends or does ESA take into account the business' income and expenditure like universal credit does?

For example: if you pay yourself a small salary (below ESA weekly earnings limit) but have surplus money in the limited company that you keep in the company, if it resulted in zero UC for that assessment period, would ESA still be payable? I mean to ask would ESA take into account the money you leave in the company eg to cover future salary, expenses etc in the quieter months. 

I'm really struggling to get my head around the UC and ESA rules. 

My reading of the guidance I referenced previously is that for C-ESA/ns-ESA the salary and dividends are earnings but money retained in the business will be ignored. You must, of course, be working less than 16 hours/week to remain entitled.

Before claiming ESA the director/employee would need to have used up their 28 week SSP entitlement.

lighthouse

Thank you. 

Do you know how ESA calculate weekly hours? I'm self employed, sometimes my business has busy periods and other times quiet. Do they calculate average weekly hours ?

calcotti

For new style ESA see
https://assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/file/810648/admv5.pdf

For legacy ESA see
https://assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/file/893682/dmgch50.pdf

Earlybird

This is a really useful discussion. My question is, would a dividend count as income if you declared it but didn't pay it, i.e. the money was left in the Director's Loan Account?

Woodcock21

Help. . hubby wants to put a claim in for ESA. He works up to 9 hours per week but keeps getting tax rebates that take his earnings just over the threshold. 

Does tax rebate count. ( We are not claiming UC)

poppy123456

Woodcock21 said:

Help. . hubby wants to put a claim in for ESA. He works up to 9 hours per week but keeps getting tax rebates that take his earnings just over the threshold. 

Does tax rebate count. ( We are not claiming UC)

Tax rebates are not earnings. To be entitled to New style ESA payments he will need to have the correct amount of NI contributions from working in the previous 2 tax years. If he’s PAYE he would need class 1. If self employed it would be class 2. He can check here https://www.gov.uk/check-national-insurance-record
How long has he been working for up to 9 hours per week?