Universal Credit for limited company directors: how your company is counted

Yes. Being a director does not stop a claim, but it changes how your income and savings are worked out. Regulation 77 of the Universal Credit Regulations 2013 deals with a person who stands in a position like a sole owner or partner of a company that is carrying on a trade or a property business, and treats them as that sole owner or partner. DWP's guidance puts the effect plainly: someone trading through a company is treated in the same way as someone who never set one up. So the company's limited liability, its separate bank account and its own tax return do not keep its income out of your claim. If the rule does not apply to you, because you are a minority shareholder with no real say in the business, your salary is counted as ordinary employed earnings and the company's own income is not treated as yours.

When your position is like that of a sole owner or a partner, which a decision maker decides on the facts of each case. DWP's guidance, drawing on the commissioners' decisions R(IS) 13/93 and R(IS) 8/92, describes two patterns. You are like a sole owner if you have total influence over the day to day running of the company, for example by owning 99% of the shares. You are like a partner if the company has a small number of shareholders and you have some meaningful influence over how it is run. A shareholder in a large company with many shareholders is an investor, not an owner, because they have no say in the day to day running. The title of director is not the test, and you do not have to work for the company to be treated as its owner. Being one of two directors with half the shares each, as in DWP's own examples, is the typical case that falls inside the rule.

For a trading company, the company's income, or your share of it, is treated as your income and worked out in the same way as self-employed earnings: money actually received less allowable expenses actually paid, reported every assessment period. A 50% shareholder is treated as having half of it. Those self-employed earnings are in addition to any employed earnings you get as a director or employee of the company, so a salary paid through payroll still counts as earnings. LITRG explains why that does not double count: the salary is also a business expense of the company, so it comes off the company's income before your share is worked out. DWP's guidance also notes that a director can receive a salary and income from shares, dividends or capital in the company, and that a director can be both an employed earner and self-employed. Tell DWP about every route money reaches you from the company, and keep the company's monthly records in the same cash-in, cash-out form a sole trader would.

It can. Where your work in the company's trade is your main employment, regulation 77 says you are treated as gainfully self-employed, and the minimum income floor applies on the usual terms. If your earnings from the company are below the floor, Universal Credit is worked out as if you earned the floor. LITRG adds that your salary from the company is counted alongside the self-employed earnings when checking whether the floor bites. A new company can get the 12-month start-up period instead: DWP's example is a director whose company began three months before the claim and who is actively trying to increase earnings, placed in the start-up period, against one whose company is 18 months old and who has the floor applied. If the company is not your main employment, it is not treated as gainful self-employment and the floor does not apply to it.

The value of your shares is ignored. In its place you are treated as owning the company's capital, all of it if you are treated as the sole owner, or your share if you are treated as a partner. For a trading company there is a large exception: assets of the company used wholly and exclusively for the trade are ignored while you are engaged in activities in the course of that trade. DWP's guidance says any work at all counts, however little, and gives taking phone messages and receiving post for the company as an example. Cash in the company account is the grey area. Working capital the business needs to trade is arguably used for the trade, but profit kept back with no trade purpose is harder to fit within that wording and can count towards the capital limits. If the company holds a large balance, ask DWP in your journal how it is being treated. For a property company there is no trade, so the exception does not apply and the company's capital counts as yours.

Two cases sit outside the main rule. A property business, meaning a company letting land or buildings in the UK or abroad, is covered by the capital rule but not by the income rule: its income is not treated as your self-employed earnings under regulation 77, and you are not treated as gainfully self-employed in it. Contractors working through their own company are the second case. Where your income from the company counts as employed earnings under the tax rules for workers through intermediaries or managed service companies (the off-payroll rules in Chapters 8 to 10 of Part 2 of the Income Tax (Earnings and Pensions) Act 2003), and that work is your main employment, regulation 77 does not apply and the income is treated as employed earnings. If you have both off-payroll engagements and genuine self-employed contracts, DWP's guidance says whichever is your main employment decides the treatment.

As a rough guide, if regulation 77 applies to you. The Universal Credit Self-Employed Calculator takes one monthly business income and one set of expenses, so enter the company's receipts and allowable expenses for the month, or your share of them, with any salary you draw counted as an expense. It has no separate box for the salary itself, or for the capital rules above, so for a director with a salary, retained profit or a part share the figure it gives is an estimate rather than the answer. If you are a minority shareholder outside the rule, use the Universal Credit Wages Calculator for your salary instead.