Sole-Trader or Self Employment Query

[tier1_PEO_applicant]

Hello All,

Just received an email from HO, which reads as below.
Just wanted to know if anyone can shed some light on the matter.

I am employed in city and also work as trainer/tutor in my field, which is education.

As such I don't have any expenses other than travelling ( but don't keep receipts ), business insurance, stationary cost.
Also, my accountant suggested that, becuase I work as sole trader, I dont' ahve to draw a salary and that my gross earning are my net earning (expenses deducted if required)

My accountant is going to prepare a new letter after deducting the expesnes and providing a gross income from employment/self employment.

I would like to know if someone has gone through similar situation, what course of action they took and if they had any more queries or got the visa once the documents were provided.

Regards and thanks in advance.



[quote]
The Immigration Rules state that you can only be award points for your
NET earnings from self employed work. You have supplied a letter from
your accountant which only states your GROSS earnings, from self
employed work, and not your NET earnings.

We are therefore asking you to supply an accountants letter, stating
both your GROSS and NET pay from self employed work, and your company
accounts.
[quote]

[gunner555]

Hi,

I had to register on this forum today just to be able to reply your enquiry. I had the same case you are having at the moment.

Submitted my application on the 30th of march and did biometrics on the 16th of April. The home office called on the 11th of March requesting for me to send a new accountants letter (showing the gross and net profit). The earlier one i sent showed only the gross earnings. They also requested for a business account(Profit and loss acc, balance sheet)

You are normally required to send those documentations in within 7 working days from the day the email was sent to you.

I had to work tooth and nail to get those from my accountant and posted that to the home office on the 18th of may, my approval letter dated 23rd of may got to me on the 26th of may and biometric card on the 27th of may.

It was pretty quick. My advice is that you send those documents and be aware what the home office takes into account is your net profit, hence if your net profit + your salaried income reaches the required earnings treshold for you, then you would get your approval letter, as that is the only thing delaying their decisoin.

Hope that helps?

Good luck!!!

[tier1_PEO_applicant]

Thanks a lot for replying, I didn't have much concern, but thanks for removing what a little I had.

I have also sent you a mail in inbox, could you please reply back on that one too ?

Regards

Hi,

I had to register on this forum today just to be able to reply your enquiry. I had the same case you are having at the moment.

Submitted my application on the 30th of march and did biometrics on the 16th of April. The home office called on the 11th of March requesting for me to send a new accountants letter (showing the gross and net profit). The earlier one i sent showed only the gross earnings. They also requested for a business account(Profit and loss acc, balance sheet)

You are normally required to send those documentations in within 7 working days from the day the email was sent to you.

I had to work tooth and nail to get those from my accountant and posted that to the home office on the 18th of may, my approval letter dated 23rd of may got to me on the 26th of may and biometric card on the 27th of may.

It was pretty quick. My advice is that you send those documents and be aware what the home office takes into account is your net profit, hence if your net profit + your salaried income reaches the required earnings treshold for you, then you would get your approval letter, as that is the only thing delaying their decisoin.

Hope that helps?

Good luck!!!

[samira_uk]

Then, can I ask a question as I am encountering such situation. What do they mean by net earning? It means after tax earning?

In that case, it is very unfair that for employee they consider before tax but for self-employed they consider after tax!!!

[tier1_PEO_applicant]

Then, can I ask a question as I am encountering such situation. What do they mean by net earning? It means after tax earning?

In that case, it is very unfair that for employee they consider before tax but for self-employed they consider after tax!!!

Hello,

Seems you are confused here.

When you are employee, your gross income is your taxable income as you don't have to deduct any expenses, because they are borne by your company.

When you are self-employed or running bussiness, the revenue is your total incoming money, but you also incurr expenses, which have to be deducted from total revenue, and the remaining money, which is what you keep as your salary, is your total taxable income.

In self-employed situations, they are considering your income before tax but all they are asking is, is to deduct expenses from revenues. This is fair as you could be earning 100,000, but if your expenses are 95,000, you've only got 5k taxable income.

If someone applied on basis of revenue they would get the visa but that is not correct amount of money they earn.

I hope this all helps your understand that even for self-employed it is salary before tax, but expenses deducated from total revenue.

Regards

[samira_uk]

Thank you for your reply.

I have another question which I could not find its answers. As you know, in accounting profit is calculated on accrual basis not on cash receipt. You may have an income which its payment has not been made yet and there is no clear and straightforward relation between cash flow and profit. Then, how UKBA uses bank statement to proof your net profit?

[tier1_PEO_applicant]

Thank you for your reply.

I have another question which I could not find its answers. As you know, in accounting profit is calculated on accrual basis not on cash receipt. You may have an income which its payment has not been made yet and there is no clear and straightforward relation between cash flow and profit. Then, how UKBA uses bank statement to proof your net profit?

I am not sure what exactly you are trying to say, but I surely can say that banks statements are not used to prove your net profit, they are used to see if you've received the money you are claiming.

For proving your net profit or rather income you use your invoices and well an accountant above all.

And though I am not accountant I surely am sure that though profit is calculated on accural basis, you surely can have snapshot of your profit loss account on a particular day in present time (balance sheet I think. say, on the day or date on which you plan to apply for visa ), that is what UKBA is asking for. They are not asking for your projected profit loss and I think they are not interested in it either, all they ask is your taxable salary, which is independent of your company's pnl.

Also, being honest, you wouldn't worry about pnl in either case. If you are trading as sole trader you won't continue business on accural basis and if you were a company you'd be drawing your salary as you'd try to sort your financing for loss making company seperately.

All the best for your visa, otherwise all these questions are of no use.

Regards

[samira_uk]

It seems that you did not get my question.

1-What do you mean by my payment? I am running a business and my clients pay to business account then do you mean that? Or payment to myself? I am not going to pay myself a regular salary or withdraw anything in my bank account.

2-About accrual there is no difference when you speak about Net profit for visa purpose or taxation or anything else. Profit is calculated on accrual basis. I made a contract of 1000 GBP worth and all the conditions met but the payment would be made two months later. To be honest, I could not get what UKBA check by bank account? Do they check the payment by my clients? As they cannot check the net profit (which is used to claim points) by bank statements. It is irrespective of whether you are sole trader or have a company.

For example, I made a 50000 GBP revenue and expenses were 15000 GBP. From the expenses I paid 12000 and 3000 has not been paid. From the revenue 25000 GBP paid to my account and 25000 is due. Therefore, mank bank account shows 25000 inflow and 12000 outflow or 13000 net but my business profit which is used to claim point and calculate tax is 35000.

[tier1_PEO_applicant]

It seems that you did not get my question.

1-What do you mean by my payment? I am running a business and my clients pay to business account then do you mean that? Or payment to myself? I am not going to pay myself a regular salary or withdraw anything in my bank account.

2-About accrual there is no difference when you speak about Net profit for visa purpose or taxation or anything else. Profit is calculated on accrual basis. I made a contract of 1000 GBP worth and all the conditions met but the payment would be made two months later. To be honest, I could not get what UKBA check by bank account? Do they check the payment by my clients? As they cannot check the net profit (which is used to claim points) by bank statements. It is irrespective of whether you are sole trader or have a company.

For example, I made a 50000 GBP revenue and expenses were 15000 GBP. From the expenses I paid 12000 and 3000 has not been paid. From the revenue 25000 GBP paid to my account and 25000 is due. Therefore, mank bank account shows 25000 inflow and 12000 outflow or 13000 net but my business profit which is used to claim point and calculate tax is 35000.

In either case, all they want to see is that what all earnings (profit in your words) you are claiming, has been deposited in your bank account, they won't take any future payments which are due. Had that been the case, as you can imagine, everyone would get visa on projected earnings basis. This is what I understand, and well is fair.

In short whatever your confusion is, if you are claiming 50000 as revenue and 35000 as your earnings, make sure 35000 is reflected in your bank statements generated before the date you put your visa application. This should not leave any confusion for you, I hope.

Take care

[samira_uk]

No it is not fair as in accounting the profit and loss is not calculated based on the cash receipt. I am not speaking about some projection for myslef. I made a contract and 90% sure that the payment would be made and then reflect it as a revenue. It is very well known accounting principles and what you said to be honest is not acceptable in accounting as we are not working on cash basis. I myslef has a degree in accounting and because of that I am confused. Profit of NO COMPANY or BUSINESS calculated in the world according to cash basis.

You had some contracts or clients and they are your debtors (a very important item in P&L). You should and could include them in your net profit. You have documents to show this. For example I have an agency agreement with some colleges and they pay me on specified time. The revenue realized but the payment is due. It is not projection! You may have a reserve for bad debts in your balance sheet to reflect that some debt may not be cashed and it would be deducted from your net profit. Therefore, no one can make imaginary profit for him/herself as these profits are based on solid documents and only payment has not been done.

Now, in order to prevent any abuse, a chartered accountant will verify your accounts. Then, why UKBA insisted on the competence of chartered accountant.

I am waiting for the response from senior member who are expert in accounting as well.

[tier1_PEO_applicant]

No it is not fair as in accounting the profit and loss is not calculated based on the cash receipt. I am not speaking about some projection for myslef. I made a contract and 90% sure that the payment would be made and then reflect it as a revenue. It is very well known accounting principles and what you said to be honest is not acceptable in accounting as we are not working on cash basis. I myslef has a degree in accounting and because of that I am confused. Profit of NO COMPANY or BUSINESS calculated in the world according to cash basis.

You had some contracts or clients and they are your debtors (a very important item in P&L). You should and could include them in your net profit. You have documents to show this. For example I have an agency agreement with some colleges and they pay me on specified time. The revenue realized but the payment is due. It is not projection! You may have a reserve for bad debts in your balance sheet to reflect that some debt may not be cashed and it would be deducted from your net profit. Therefore, no one can make imaginary profit for him/herself as these profits are based on solid documents and only payment has not been done.

Now, in order to prevent any abuse, a chartered accountant will verify your accounts. Then, why UKBA insisted on the competence of chartered accountant.

I am waiting for the response from senior member who are expert in accounting as well.

All the best mate, not sure why would there be any abuse as we are just trying to help you as you are so confused having had a degree in accounting(as you've said yourself).

I am sorry my knowledge is just limited to what all I wrote, though I got my visa with this limited knowledge as that is what the guidance document suggests we do.

May be you should just apply and see what happens, in either case you can argue with UKBA about the accounting principles.

Take care and all the best.

[samira_uk]

I did not meant o insult you and thank you for your help. But I am confused because UKBA guidance is not clear. You were lucky as your business nature is of a type that there is no or very little discrepancy between net profit and cash flow. But generally the discrepancy is huge and because of that accountants are learned to reconcile the income and cash flow.

I only wanted to mention you that what I said is not projected profit. It is realized profit which is due and not paid yet. The role of chartered accountant is to verify that your claim is correct according to accounting principles.

Again thank you and apologize if you misunderstood me

[silverline]

Hi Guys

tier1_PEO_applicant >> Samira isn't talking about "projected" profit. She is talking about "accrual".

To the best of my knowledge home office didn't prescribe any particular accounting basis i.e. accrual or cash. So you can choose or perhaps your accountant will suggest you the best course. Bank statement, perhaps not directly, but indirectly helps to assess the ingenuinity of the profit, or figures if you want to say for this purpose.

But if your accounts show a significant portion of revenue e.g. over 50% in accrued form & similarly significant expense payments in advance, then don't blame a case worker when he gets fishy about your accounts. It's not just that they have to be genuine but they should also "look" genuine. And that's precisely why we are in business.....

By the way I am a Chartered Accountant

Hope it helps.