lettucewoman
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OK I think we may have mucked this up............we have been running our own parnership for a few years now, however it's not made a huge amount of money,just enough to live on.
At the moment we are looking at an empty order book, so we have aksed the local council for some help with the rent and our council tax, as our income is so low.
They have helped in the past for a few weeks until things picked up.
Unfortunately, they base their calculations on the previous years tax returns..and last year we grossed £15000 before paying actors, business expenses etc. Where I think we have gone wrong is that we have never said how much of the money for the year we are taking as wages..we just assumed that it would be obvious that the 10000 or so left would be what we actually lived on , paid the bills with etc that year.
They now seem to assume that that was all profit, have extrapolated a figure of £110 per week each that we are living on now, and consequently say we are not entitiled to any help. We have several thousand pounds of overdraft because of late payers last year, and no savings of any kind.
We only want a bit of help until we can get more work..we are frantically arranging meetings etc to try and sort this out, but meanwhile in about 2 weeks we run out of overdraft and will be unable to pay rent, council tax or even any bills... 
What can we do? We have obviously made a huge mistake somewhere (not employing an accountant springs to mind)..we are appealing but how the hell do we prove that we are not living on profit cos there wasnt any...weve given them our bank statements etc.
I'm actually desperate to know what we can do...we are looking at maybe getting shelf stacking jobs but then how do we continue to work on the business? There's hope that come the Autumn we will have work coming in, clients often want us then, but how the hell do we get from here to there?? Or should we just give up and admit the business is dead? Any ideas would be welcome.
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sally_in_wales
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I might be misunderstanding your post, but from what you say, the after expenses sum is profits, and yes, thats what you are living on, but you are living on the profits. 10k (round sum for the sake of wossname) div by 52 weeks is £193 per week, so I would expect, if it were me, for them to assume that that is what we have coming in per week 
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lettucewoman
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but we lived on that the year we made it ie last year...jan 2008 - 2009! As we earned the money we used it to live on...by this year there was nothing left. ...we paid bills bought food etc etc. Added to which we had some very late payers, so we had to go inot our overdraft...by the time the payers paid all it did was bring us back to a few pounds over the overdraft.
Maybe I'm being stupid...does everyone pay themselves for the next year out of what they earned the previous year?And what if that was all used?
OUr work is quite spread out..not every week or even every month..so when we are paid we live on that until the next job.
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sally_in_wales
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I thought they always calculated such things a year in arrears, unless you have arranged to submit accounts to them more regularly, its the only way thay can generate a figure that can be audited, isnt it? Its like the way you often have to pay tax next year for last years earnings, rather than as you go along.
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marigold
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Have you talked to the DWP and CAB as well at the council? You may be entitled to more than just council tax benefit. The entitledto website enables you to do your own calculations. Maybe one of you could apply for JSA while the other ticks the business over?
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lettucewoman
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| marigold wrote: | | Have you talked to the DWP and CAB as well at the council? You may be entitled to more than just council tax benefit. The entitledto website enables you to do your own calculations. Maybe one of you could apply for JSA while the other ticks the business over? |
according to the DWP they think the same...we are living on last years profits.
we didnt make any...the "profits" were our wages. what we lived on. then. not now.
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Effie
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I'm sorry I have nothing constructive to add, I just didn't want to read and say nothing, this is a horrible, stressful position to be in and I really hope you find a resolution quickly.
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marigold
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Bum. Get a busker's licence and start entertaining the crowds on the beach?
Nil Desperandum though, there must be a cock-up somewhere and hopefully it's just a question of getting it sorted out.
Useful advice given to me by my bank at a difficult time: Write to your bank and CANCEL all your DDs BEFORE your overdraft runs out - that way you won't get bank charges on any unpaid DDs.
Another thought: If you are still poorly and your Dr is willing to sign you off as unfit for work you may be able to apply for Incapacity Benefit if your NICs are up to date. But you won't be able to work while claiming it, obviously.
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Cathryn
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I imagine that with words like recession around, most companies will be cutting down and this must affect your work. It might be a case of hanging on until things pick up and this might mean that you need to do other odd jobs to fill in until then.
However, if you think the DWP have got their figures wrong then go and speak to someone at CAB as they will be able to help.
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mihto
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| Effie wrote: | | I'm sorry I have nothing constructive to add, I just didn't want to read and say nothing, this is a horrible, stressful position to be in and I really hope you find a resolution quickly. |
I have nothing to add, either. Not knowing your laws there is nothing I can advice. I certainly feel for you and I wish you the very best. At times in my life I have also been staring at blank hopelessness. There is always a way out, but finding it can be extremely nerve racking.
The most heartfelt wishes for good luck!
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judith
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| lettucewoman wrote: | according to the DWP they think the same...we are living on last years profits.
we didnt make any...the "profits" were our wages. what we lived on. then. not now. |
Unfortunately, I think this is where your misunderstanding lies. I'm assuming that from the tax viewpoint a partnership works in much the same way as a sole trader.
As a sole trader (my gross earnings - my expenses) = my profits. As I am the owner of the business, rather than an employee, any money I take from it comes in the form of drawings rather than wages.
If I employ another person to do any work from me, I would pay them wages, and those wages would be deducted from my profits. But the money that I use to live on is profit that is directed into my pocket, rather than put back into the business.
I don't know how this affects your position, but I am pretty sure that the Council are right about it.
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Moniar
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If you have no current income and no savings over £16,000 you should be entitled to income support - at the very least you should get housing benefit and council tax benefit. From memory, they should be looking at your average wage or drawings from the business over the last three months prior to the date you claim. You can also request that they backdate the claim up to twelve months if you can persuade them that you have a good reason for not claiming earlier. You need to contact the cab or other money advice centre for an urgent appointment. Failing that, call into the Council's housing benefit office with all of your business income and outgoings paperwork and ask for an emergency interview. if they accept that you may be entitled, ask them for an emergency "payment on account" pending them processing the claim correctly.
If you have already done the above and have had a nil entitlement determination letter from them, if you pm the details of what the letter says I may be able to advise you further ( I used to manage a housing benefit department and also have professional experience of advising on rent arrears issues).
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welsh veg grower
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added to moniar as his partner in crime I advice business owners and I can have a look and see if you are going wrong as you shouldn't be using last years income to determine benefit etc.
Not sure but there could be assistance for you also so it could be worth talking to your local enterprise agency about any support during these tough economic times.
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2steps
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Not sure if it's the same as I'm not self employed but when I had to claim for all these when the kids dad left it was all worked out on what money I had coming it at that time. No one mentioned anything about beforehand.
I believe if your working less than 16 hours a week you can claim income support (reduced depending on what you earn) over that you claim working tax credits. Then housing and council tax benefits are worked out from what you get. I'm not 100% on that as it's been a while and seems to change often.
Hope you can get sorted and fast. Know what it's like to be in this position
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Helen_A
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Local council are supposed to base your income on your actual realtime income for the purposes of Housing benefit and council tax benefit. They use the previous tax year as a guide - but only a guide if the current 12 week block is different (and marginally so, not the major differences expected by the HMRC for WTC/CTC). Annoyingly they can and do then take the figures that the HMRC formulas say you would be entitled to as income (because the computers are all linked up argh!) so you can find yourself suddenly assessed as owing more Ctax, for example, because the formula says that your income entitles you to xxx when actually you are only getting yyy (this being our current argument with our LA)
WTC and CTC are based on the previous year unless there has been a major change and then you request to be assessed on current tax year (whatever the direction of the change).
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Mary-Jane
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Moniar has given you some very sensible advice there Megan.
As an aside, you could also consider putting the business 'on hold' for 6 months or a year and register it as dormant (assuming you are registered) and get jobs to tide you over until you get back on an even keel - or one of you at least. You do what you have to do to keep going. Gervase and I had 5 part-time jobs between us for a year when I gave up full-time work to do my LPC (solicitors' finals). It was tough - but we kept going and it kept a roof over our heads.
Is your partnership registered as an LLP (Limited Liability Partnership) already? If not, you may want to consider winding up your current partnership and register as one...and get an accountant. We pay our accountants an agreed and manageable sum each month by Direct Debit so when their bill comes in it's already paid for.
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lettucewoman
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No it's not an LLP..we were a limited company but wound that up and became a partnership.
We are already looking at various income streams, but we can't put the business on hold as the work is so sporadic if we didn't market as much as we do now we might as well not bother at all
Its just this living on profits thing no ne seems to be able to explain to me...we lived on the income in the year it came in, so effectively there were no actual profits to live on this year! So why do they assume that you have an income of almost 200 a week when that money was lived on last year? Still does my head in.
Thank ou all very much for you advice and support...we will see what we can sort out next week with your help!
(made a few bob today selling jewellery so at least we can eat this week!  )
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Pilsbury
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have you worked out that old time music set yet? might not be a big earner but might be something to tide over the lean months.
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RichardW
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I think there are a few places that this is going wrong.
1, Income is ANY money you get paid PERSONALY, normaly called drawings for self employed.
2, Profits is any money the partnership makes (which includes drawings) and any money saved or in some cases reinvested.
3, they have used last year accounts as that is what you have supplied. You could have supplied accounts from them up to now. Or at least explained to them that this year has been a bad year & you have not had the same level of income/profits/drawings.
4, Your not expected to live on last years money but as you dont have pay slips they need some proof of your income for THIS year.
5, The problem seems to be that you are not understanding the terms they are using (income, profits, drawings) & that they dont understand that last years income / profits are not going to be repeated this year (which is what they assume)
Working tax credits work on the same basis of using last years accounts to pay this years money but they can then balance it in the following year/s.
You need to appeal the decision.
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Chez
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I see what Megan means, I think. We have just renewed our working tax credits and they seem to assume that you end the tax year with a lump sum that is your profit from last year. ie, any income or drawings that you had in the previous tax year - and lived on - are still hanging around. They seem to have added those to the sum I have given them as an estimate of our earning THIS tax year.
So they seem to be adding it to our assessment twice - once for last year, and once for this.
Everything ours is based on is still an estimate as we haven't got the tax stuff back from the accountant; and our chap is pretty good on benefits, so I'm not panicking too much yet - we've got enough coming in to tick over, just about.
It seems a bit odd though.
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Gervase
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In a nutshell - for a partnership, profit = income.
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Chez
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Yeah - I'm fine with that. The weird thing seems to be that they add your last years profit to your current years profit and work your entitlement out on that, rather than just extrapolating your current year's profit from your last year's. If that makes sense.
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vegplot
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It certainly needs looking at again. Megan, it's worth your while trying to get your head around it, it's not easy to understand (it took me a while to grasp the basics of business finance) but there are plenty of people here with a working knowledge who can help.
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lettucewoman
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| Gervase wrote: | | In a nutshell - for a partnership, profit = income. |
yes I see that....but they are saying that that income is what we are living on THIS year when we used it to live on as it came in..last year!
I'm very grateful for everyone's input..we will look at it again and appeal. 
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vegplot
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| lettucewoman wrote: | | Gervase wrote: | | In a nutshell - for a partnership, profit = income. |
yes I see that....but they are saying that that income is what we are living on THIS year when we used it to live on as it came in..last year!
I'm very grateful for everyone's input..we will look at it again and appeal. |
Do you think they are assuming the profits you declared for last year are after you took a living wage rather than including it?
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lettucewoman
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| vegplot wrote: | | lettucewoman wrote: | | Gervase wrote: | | In a nutshell - for a partnership, profit = income. |
yes I see that....but they are saying that that income is what we are living on THIS year when we used it to live on as it came in..last year!
I'm very grateful for everyone's input..we will look at it again and appeal. |
Do you think they are assuming the profits you declared for last year are after you took a living wage rather than including it? |
YES! Thats it! I think....so how should we have included a living wage in our tax return? we just took off all the expenses and declared the sum remaining..which was all it appeared you could do? This is why we should have had an accountant but to be truthful we just couldn't afford one
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RichardW
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| Chez wrote: | | The weird thing seems to be that they add your last years profit to your current years profit and work your entitlement out on that, |
Not for us they dont.
They use last years figures to confirm last years payments then use last years figures to forward plan this years payments "on account". At the end of this year they will want that years accounts to confirm last years payments & forward plan next years payments on account.
Deppending on when you do you accounts & when your accounting year is you could be getting your payments on account based on income from two years ago (or on projections). But each year they check payments you have had & the money earned in the same year & balance them.
They dont add one years money to another years money at any time (unless its in your savings).
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vegplot
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| lettucewoman wrote: | | vegplot wrote: | | lettucewoman wrote: | | Gervase wrote: | | In a nutshell - for a partnership, profit = income. |
yes I see that....but they are saying that that income is what we are living on THIS year when we used it to live on as it came in..last year!
I'm very grateful for everyone's input..we will look at it again and appeal. |
Do you think they are assuming the profits you declared for last year are after you took a living wage rather than including it? |
YES! Thats it! I think....so how should we have included a living wage in our tax return? we just took off all the expenses and declared the sum remaining..which was all it appeared you could do? This is why we should have had an accountant but to be truthful we just couldn't afford one |
Sounds like you did the right thing, they've just extrapolated last years figures assuming business is the same this year however it patently isn't. You need to go back and explain this. Also, start applying for whatever benefits you can as these are based on your current circumstances not last year's.
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Chez
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| RichardW wrote: | | They dont add one years money to another years money at any time (unless its in your savings). |
That's what the website seems to have done when I've double-checked the figures. I'll wait until they send us the paper copies of it all and see - I thought it seemed peculiar.
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Rosemary Judy
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I pay myself each month the amount I have earned - I pay basic wage, but I enter it each month as a 'drawing' and show it going to myself. I actually move it to another bank account, so I can spend it and not leave it in the business.
Any money then left at the end of the year is profit - and I get that as a bonus !
So I wonder if this is how they see it ?
You don't on paper appear to have paid yourselves at all, and I think it is fair to assume the profit is what is left at the end of the year, so you cn pay yoursefl out of it.
This is all on the self assessment pages - I found a great link that explained the need to pay myself as if I were an employee as I went along.
Hope you can sort it all out......it sounds a rotten situation
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pookie
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| Chez wrote: | | RichardW wrote: | | They dont add one years money to another years money at any time (unless its in your savings). |
That's what the website seems to have done when I've double-checked the figures. I'll wait until they send us the paper copies of it all and see - I thought it seemed peculiar. |
This is refering to tax credits, but the system is more or less the same ------It is basically gross profit minus 'allowable' expenses = net profit.
That is what you need to tell them each year.
The following year they automatically carry forward the figure as an estimate for the year, as this is all they can base the figures on, unless you tell them otherwise part way through the year that you are going to be nowhere near last years figure
You can then give them a more realistic figure and they adjust your payments. At the end of the tax year when you have your actual figures, they input those and you will have either been overpaid and will need to pay it back, or they will have underpaid you and you will be due some. (on the other hand they may have paid you correctly. ) Richard is correct, they do not add last years to this years, you need to ring them up Chez.
Lettucewoman they aren't thinking you still have last years money left to live on now, they are assuming you will make a similar amount this year, until you tell them otherwise
Take some advice from CAB as others have suggested or go direct to your local tax office and tell them your position.
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marigold
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How's it going LW? Hope you are on the way to getting things sorted out.
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beean
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They are just trying to get some way of estimating your income for the current year, and the only thing they have to go on is last years' accounts. Can you draw up accounts for 6 months from your last year end? A complication is that they may've based LAST years benefits on the previous years accounts, meaning that you wouldn't be entitled to them on the basis of previous years' actual income.
Your share of partnership profit is part of (or all of) your income. If you had a job, wages would be part of your income. If you had shares in a business, dividends would be part of your income....etc.
Example:
Sales £100, costs £20, salary £20, employers national insurance £1 = profit of £59. So your income would be £79 (the £20 wage and the £59 profit from the business).
vs
Sales £100 costs £20 = profit £80, so your income would be £80.
Your profit should be worked out as all income (revenue/sales) less all allowable costs (e.g. rent of business premises, but not rent of your house). If you take a wage from the business, you can recognise that as a business expense... BUT that wage would be part of your income so it'd still be taxed and included in assessing any kind of benefit your entitled to. It's often more expensive to pay yourself a wage due to employers' National Insurance then being payable - but is a long time since I did any personal tax stuff so please check that before you're tempted to act on it!
You said that you profit was BEFORE paying actors' wages? I don't see how that's fair, as third party wages (i.e. if people aren't getting a share of the partnership) should be an allowable expense normally? You MAY be able to claw some tax back by late adjusting if it was worthwhile.
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