ILR - Self Employed / Limited Company

[AndrewMuzz]

Hi

My wife is approaching the point at which we want to apply for her ILR. She is here as my spouse and has an FLR currently on the 5 year route. In many ways our applications are quite straightforward - married more than 10 years, 2 kids with British passports, own our home jointly etc. The issue this time around is my employment position.

I entered into a new partnership with colleagues early last year. We started earning real income from about August as a partnership. We pay ourselves by invoicing through our own limited companies mainly for liability reasons but will switch to partner draws at some point soon (all as advised by our accountant). In addition our income is patchy as a new business.

Our direct income is therefore currently from the limited company. This is in the form of a salary for my wife (all PAYE) and some dividends to both of us. Over the next 6 months I anticipate that we will continue this arrangement but the dividends will vary and may not be paid regularly. I should be able to comfortably pay out more that the minimum of £18,600pa which I think still applies to our application as an existing FLR.

I am trying to understand how this will be viewed and how we evidence it. Will a PAYE role be treated as such from a company my wife owns 50% of and is a Director of? Are advance dividends treated as income? Tax returns in arrears won't be particularly helpful as they won't be filed by the date of the application although we will have bank statements. Is it the just the 6 months before the application we need to evidence? If 12 months it would be helpful as we have already exceeded the minimum over the last 6 months.

Thanks for any help.

[zimba]

Read the official guide: https://assets.publishing.service.gov.u ... rement.pdf

Checkout the section titled: Director or employee of a specified limited company in the UK – specified evidence

If you are working for your own company (or your spouse's company), that is called a specified company under the rules. There are very specific documents you need to provide and the income will be based on the company's accounting period. You can also only apply under category G or F (not category A or B like a normal employee)

[AndrewMuzz]

Thanks for the link. This is going to take some working out.

I think this means that I can use the company accounts from the financial year prior (which in my case ended in November 2023 so would be 9 months out of date by the time we apply). I can also show that we have invoiced during the 9 month period and provide an explanation. I can also do our personal tax returns early and provide them showing that we made enough during the tax year to April 2024 albeit I think it is one or the other for evidence.

What I am not clear on after reading is whether I need to show evidence from November 2023 (end of tax year) to the application date as well?

[zimba]

You just need to show that the source of income or any employment is still ongoing. So if she is on PAYE in the company, she still needs to be on PAYE, however as you figured, you can only claim income earned within a tax year

[AndrewMuzz]

Thank you for all your help. One last question:

If the limited company had income of £40,000 in the tax year but we didn't draw the dividends (leaving the cash in the company) until afterwards so our income on personal statements won't show it during the accounting period is that a problem? Income from salary is relatively low but dividends add another £20k or so but we aim to draw that now before April for the personal tax year. Will they count the distributable profit as income if it wasn't transferred at the time but was available?

This much be quite common - people don't know what distributable profit they have right away at the end of the financial year.

[zimba]

No. If you read the guide, you can see that ONLY income earned matters either as salary drawn or dividends. What the company made is irrelevant. If you need to draw dividends, then that has to happen within the last accounting/tax year

[AndrewMuzz]

Oh - we didn't draw enough then. The company route was only being used from August and was effectively dormant before that. I did also get redundancy pay from the government service (as my employer went bust), Overall I got salary payments (from old employer) during the company financial year that mean I have been above the limit both in the company tax year and the usual tax year. My self assessment returns will all show that we have always met the requirements over a tax year.

I guess I just have to detail all this carefully with full evidence and explanations. The reality is we have earned above the limit every year - just that losing a job and starting a business have fallen in the middle of the period before the application.

[zimba]

Rules are very specific. It is not about just earning enough. Many other factors apply as you see in the guide. Sources of income can only be relied on if they still exist. They also need to match your tax year when you are applying under category G/F. Do yourself a favour and read the guide carefully

[AndrewMuzz]

I will thank you. I think on balance the best solution is to go with savings. Most of our rainy day funds are in premium bonds so I will top them up tomorrow to get the £34,600 clearly separate and ring fenced in either my name or my wife’s name (probably a mixture) and not touch them until September. End of August I have the 6 months savings and can cash them in before I apply and use that route. Self employed evidence just seems too hard.

Thank you for taking the time to reply to my queries.