Does the weekly earnings limit include shareholder dividends? Would a tax refund affect ESA? — Scope | Disability forum
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Does the weekly earnings limit include shareholder dividends? Would a tax refund affect ESA?

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lighthouse
lighthouse Community member Posts: 8 Listener
edited February 2021 in Employment and Support Allowance (ESA)
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?
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  • calcotti
    calcotti Community member Posts: 10,010 Disability Gamechanger
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    Dividends and tax refunds are not earnings.
    Information I post is for England unless otherwise stated. Rules may be different in other parts of UK.
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  • helentt
    helentt Community member Posts: 4 Listener
    edited February 2021
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    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. 
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  • lighthouse
    lighthouse Community member Posts: 8 Listener
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    I would also like to know how you actually inform ESA about your earnings and how often you should do it. 
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  • helentt
    helentt Community member Posts: 4 Listener
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    I think it’s initially and then if anything changes. Maybe someone with better knowledge can advise for sure.
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  • calcotti
    calcotti Community member Posts: 10,010 Disability Gamechanger
    edited February 2021
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    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
    Information I post is for England unless otherwise stated. Rules may be different in other parts of UK.
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  • calcotti
    calcotti Community member Posts: 10,010 Disability Gamechanger
    edited February 2021
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    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.)

    Information I post is for England unless otherwise stated. Rules may be different in other parts of UK.
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  • helentt
    helentt Community member Posts: 4 Listener
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    Thank you @calcotti it seems that my instinct was correct that any dividends would be seen as income. Thanks for finding the relevant document!
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  • lighthouse
    lighthouse Community member Posts: 8 Listener
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    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. 
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  • calcotti
    calcotti Community member Posts: 10,010 Disability Gamechanger
    edited May 2021
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    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.
    Information I post is for England unless otherwise stated. Rules may be different in other parts of UK.
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  • lighthouse
    lighthouse Community member Posts: 8 Listener
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    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 ?
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  • calcotti
    calcotti Community member Posts: 10,010 Disability Gamechanger
    edited May 2021
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    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
    Information I post is for England unless otherwise stated. Rules may be different in other parts of UK.
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  • Earlybird
    Earlybird Community member Posts: 1 Listener
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    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?
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  • Woodcock21
    Woodcock21 Community member Posts: 43 Connected
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    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)
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  • poppy123456
    poppy123456 Community member Posts: 54,187 Disability Gamechanger
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    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? 
    I would appreciate it if members wouldn't tag me please. I have all notifcations turned off and wouldn't want a member thinking i'm being rude by not replying.
    If i see a question that i know the answer to i will try my best to help.
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