Queries regarding HSMP/Incorporation

[alientrader]

Hi guys,

with regards to the new points system for FLR (HSMP)...wonder if anyone can give me some advice here....

If i intend to incorporate a company to do some business, so let's say i put 60k as capital into the company, and pay myself a salary of say 3k every month. the salary that i extract will therefore be 36k pounds anually. If for some reason, the company is not very active or makes very little profits/dosent do very well etc, say only 2k in profits during the entire financial year.....
How do i then calculate my points with regards to the new system, could i claim points based on 39k that i extract from the comapny (which is really esentially my money anyway sans taxes, NI etc) or will HSMP reject it and say since ur company only made 2k, u are not eligible for the earning power criteria....

Any thoughts will be greatly appreciated

[LondonBlonde]

I believe they are only interested in taxable income you've earned while in the UK. The money you pay yourself is an arbitrary amt, and not considered income so would be ignored.

[alientrader]

Thanks LondonBlonde,

but isnt a company legally a seperate entity, and the salary that would be paid out would be taxable income....

[Spear]

alientrader,
You are correct. Income you make from business is taxable and will be considered income. The HO alows for selfemployed people. It is common also that businnesses do not make a profit in their first year / years. However as per extension rules you have to provide: personal income tax returns, personal bank statements, audited / or unaudited accounts along with either business tax returns and / or business tax statements. Therefore the HO will be able to determine if your business is actually doing business. I suggest you get a bonafied business and do some trading.
I am organising to become a sole trader to get extra income fast. I am making sure I document everything. If you are unsuccessful at sales then a good option would be to beg friends to buy your product / service.

[Spear]

One other point:
people who are involved in self employed service businesses could pay themselves all the earnings as taxable income but do not keep any of earnings as profit. For example: if you build websites for $100.00. You can take the money as self employed earnings (pay) and do not put anything into the business (which probably has no operating costs). The same goes for many other home businesses (e.g tuition, bookkeepers, etc).

[LondonBlonde]

Yes but you are essentially paying yourself. You can say you make whatever you like. This is why they would ask for company bank statements. If your company takes in 10K, and you are paying yourself 40K, guess which figure they will allow?

I'm also self employed and am relieved to see that the HO is not going to force us to break existing contracts if we don't meet the 75 points.

I have only one more extension next year, but worry about new HSMP people as HO appear to only allow one self employment exemption (per wording on the forms). If you use it once, you will be held to the 75 point on any further FLR.

[Spear]

Hi LondonBlonde
I agree with you. Your business should be bonafied. This would be reflected on your business and personal bank account statements. Your business certainly cannot be making $10.00 and you pay yourself $1000.00.
However I worry for people who cannot show six months of future contracts to get the special arrangements for self employed.

[alientrader]

Thanks guys,
interesting discussion we have here.

I am currently self-employed as a sole trader and was thinking of the incorporation option to show transparency as per the new guidelines.
The new system dosent seem clear at all, it says that you either have to show A)company audited accounts or B) unaudited business records + collated invoices and contracts. So i am presuming for those who are unincorporated, we would have to fulfill Option B. But surely, there are many businesses that does not pertain to this kind of business model of "contracts+invoices." I can think of several right at the top of my head, giving seminars, teaching speacilized skills to a large group of people,etc. where hence can i get a contract+invoice. it seems that either HO is trying to pigeonhole HSMP-ers into a very specific business paradigm, or that they were really not thinking at all when they drafted those rules. There is a whole range of legitimate businesses that would fail to satisfy option B. Perhaps the only option is to incorporate and get the company accounts audited. please correct me if i am wrong?

I dunno if i agree with London Blonde regarding, company making 10k and paying yourself 40k. What if the company is a business that is highly sensitive to business cycles and/or you just cant make money that year or the business is such that its highly unstable in terms of profit generation year upon year. As an example, let's say i am involved in fund management, due to prevailing market conditions with respect to my business decision making capabilities, I make only a handful of transactions a year in the financial markets and making only 5k the entire year, while paying myself 40k, after all i have to live. Just an example.
Surely this is a bonafide business.

As an afterthought, if u are an employee of a company u set up, if the company is a legal entity in its own right, and u are its employee. Why can't you just show evidence as a salaried employee, payslips, income tax etc. Perhaps there is no need to show company accounts at all?

Any thoughts would be appreciated.

[Spear]

AT
I have given a lot of thought on the self employment options the HO has outlined. There are numerous loopholes and it is not well thought through. The bad part is we would not know their line of thought until people submit applications and they share their results.
The evidence options do not take into considerations persons who sell a low cost fast moving cash product. You cannot give verifiable evidence of that, or invoices or contracts. You would only have product or material purchases and cash deposits into your account. This type of business can yield tremendous income however. If you teach many students on evenings, have a prep course for SAT's etc again you can make a lot of income but will not have contracts or invoices and many payments may be cash.
Also if you incorporate you can hire a a low paid part time manager and become an employee. At that point all you need are salary slips, tax forms, bank statements and reference no. / email contact of the manager (who would verify that you are employed with the company.
Again I think it is a difficult situation for bonafied self employed persons because we are just not sure what is acceptable by the HO.

[Jk2007]

I am in a similar situation. I operate through a limited company (not owned by me). The company has allotted me a 'D' share. I receive my income part as salary and part as dividends. My company told that I am indeed an 'Employee', NOT 'Self Employed'.

With my FLR(HSMP), I submitted my payslips (signed and stamped), dividend tax vouchers (signed and stamped), my personal bank statements (Where salary and dividend are credited), and a letter showing my contract details (period and rate).

[alientrader]

Jk2007,

i think your case is much more clear-cut. i was referring to those who have set up companies with their own capital and actually own them.

[lanr3e]

I think the HO is only interested in the amount of tax you pay. They will need to be satisfied that you are paying the correct amount of tax which is proportionate to how much you earn. I am sure you know that this is easily verifiable from the HMRC.

You should also note that there's a difference between owning a limited company and being self employed.
Self-employed people are normally into direct trade e.g Plumbers, Electricians etc. They register with the HMRC as Self employed and they file their Tax returns to the HMRC at least once during the financial year.

If you own a limited company, then you are an employee of your company. The company should be registered with the companies house showing that you a director and it should have a secretary. You should have and operate a Business account which may be managed by your accountant. Your accountant should normally pay you and send you payslips showing your PAYE tax breakdown. He will also ensure that corporation tax is paid on behalf of ur company.

So if you own a limited company, you can use the payslips issued by the accountant and your bank statements to show proof of your earnings as lomg as the earnings are properly taxed. The HO will not bother about your business making profits or not after all there a lot of companies making losses and yet they still have employess that get paid e.g Royal mail.

So just make sure you are paying the correct tax and you will be ok.

[Jk2007]

lanr3e,

I think HO is not interested in HOW MUCH taxes one is paying, since this will mean HO is taking the role of Tax department. I think HO is interested in the Tax return only to ensure that the FLR(HSMP)applicant is showing earned income. That is why alternative proofs other than Tax return are allowed.

In case of Self employed candidates, since there is some confusion in calculating earned income, the tax return may be appropriate. But I think the newly incorporated companies have some time before they calculate the correct amount of tax they need to pay and file their return.

This is just my view, I am not expert in the field. Someone who has more experience in this area will be able to provide clear views on this.

[lanr3e]

I only would have agreed with you if you were refering initial HSMP applications in which HO would only be interested in how much you earn in order to grant HSMP status. But for FLR, I believe they are interested in how much you have earned which will give an indication of how much tax you should have paid.
it's by the amount of tax you pay that they will determine if you are contributing positively to UK's economy. They have introduced the new earning bands to ensure that all HSMP participants earn a certain minimum amount, which would be taxed, in order to qualify for FLR.

Trust me, they are after your TAX!

[alientrader]

I agree no doubt its all about the money, i believe soon for ILR they will ask applicants to show tax statements for ALL the years that they have been under HSMP, total up the amounts that have been taxed, and if you donn't meet some cut off figure of say 150k pounds or whatever, you are out of the system. No doubt this is the Hidden Slavery (Modern) Programme.

[Jk2007]

It is a good idea to preserve all the payslips, tax returns, Bank Statements for all the five years. Also copies of all contract / employment documents.

Just in case one needs to submit it during ILR.

[badhorse]

This is an interesting subject, but the more you talk about it, the less useful it would be.

The more people know how to use this approach to get their HSMP extended, the sooner this route will be blocked.

Keep quite, do your research and just do it.

We all know money talks, and systems are invented to control those poor. This is the basic rule of the Western world.