ILR - Self Employed Earnings - gross vs. net income

[KayNa]

Hi, thanks in advance for taking the time to read my query.

Here is my situation:
- currently Tier 1 (General)
- Tier 1 (General) awarded 20 March 2010
- applying for ILR in April 2013
- need 35 points for earnings in order to get 75 points total
- this equates to annual earnings of £32,000+
- am self employed
- my gross income is above £32,000, net income way below £32,000

My question is:
Regarding the quote below from the guidance notes, would it be possible for me to assign myself a salary in my business, equal to the gross income, and say that I use that income to pay for various expenses, so that my total earnings are over £32,000?

Or does anyone know of another way that a self employed person could use their gross income (instead of net income) to get higher points for total earnings?

Any advice would be much appreciated!

We will assess an applicant’s earnings. If an applicant is in salaried employment, we will assess the applicant’s gross salary before tax. This includes self-employed applicants who draw a salary from their businesses. ...
If an applicant is self-employed and has chosen to retain the profits within the business, his/her earnings are limited to the share of the business’s net profits to which he/she is entitled.

[gaboon_viper]

you should claim Gross as per rule

[KayNa]

Thanks for your reply. That's what I'd like to do but I'm confused by the rule.

All of the profits from my business go to me and no one else.

Does this mean that I "retain the profits within the business" or that I "draw a salary from the business"?

I assumed "draw a salary" means that I have employees and I pay myself part of the profits, whereas "retain the profits" means I keep all of the profits, which is the case for me, which means I'd have to claim Net Profit.

Does anyone know the answer, or where I should look, as I can't find any further guidance on this.

Thanks - any advice would be really appreciated.

[KayNa]

Also just found this in the settlement guidance notes - it's the last line which says that only net profits can be claimed... not looking good!

Self-employed earnings within a business or company structure:
If an applicant has worked in a self-employed capacity in his/her own business or company structure and has chosen to keep his/her earnings within the business or company, he/she could provide:
 business or company accounts that meet statutory requirements and show the net profit made for the earnings period claimed; and
 personal/business bank statements.

If the applicant’s accounts and bank statements only show the gross amount of profit for the business he/she should also provide a third piece of evidence showing the net profit of the business for the period claimed, for example a tax return which can be for either self-assessment, or corporation tax1, or they can submit an accountant’s letter. This is because we can only consider the net profit of the business for the applicant’s income.

[antouk]

As per my understanding it is gross salary & net dividends for self-employed(contractors)

[KayNa]

Thanks, and sorry about this but I'm still confused... what's the difference between salary and dividends in my own case?

I teach evening classes but don't have a registered business (however I am registered as self-employed with HMRC). My students pay me directly into my bank account and only I have access to that money.

The rules seem to state that I can only claim net profit, however your advice is to claim gross - is that correct? Has anyone claimed gross in the past and received ILR?

Thanks for your time.

[betaab]

I also have the same query, can someone please reply.

Sole trader self employed ILR application: do UKBA considers gross income or net profits?

(iv) Self-employed earnings within a business or company structure:
If an applicant has worked in a self-employed capacity in his/her own business or company structure and has chosen to keep his/her earnings within the business or company, he/she could provide:
•
business or company accounts that meet statutory requirements and show the net profit made for the earnings period claimed; and
•
personal/business bank statements.
If the applicant’s accounts and bank statements only show the gross amount of profit for the business he/she should also provide a third piece of evidence showing the net profit of the business for the period claimed, for example a corporation tax return or an accountant’s letter. This is because we can only consider the net profit of the business for the applicant’s income.

[Manka10]

UKBA will consider net profit (gross income before tax - expenses) as earnings

[betaab]

I used to think that Net Profit = Gross Income - Taxes

But it seems the correct definition of net profit is Gross income - Expenses. Thank you so much. It makes things clear.

[karg_g]

Hi

Hope this clears it for you guys:

1) Self Employed in Pvt business/Sole Trader: Show your Gross Salary + Net profits

2) Limited Company as Director (This as per HMRC you are employed) : Show your Gross Salary + Gross Dividends.

I find the Option 2) is much easier and less hassle to work around. The biggest benefit with Option 2) is your company could have made the revenue anytime but your Salary & Dividend will be considered in the past twelve months for your Extension/ILR.

With Option 1) you could only use the recent 12 months for claiming points.

[terrytexram]

UKBA will consider net profit (gross income before tax - expenses) as earnings

Please clarify that the points generated are based on the net profit including the personal allowance given by HMRC or will it be the taxable amount that is the net profit minus personal allowance. I am a bit confused so please help me as my ILR application is due in 2 weeks.