Not sure that this is ok? Benefits related AIBU

[Secrets2tell]

I have name changed as my previous username has identifying posts.

So my cousin runs her own business selling personalised goods. She claims housing benefit due to a low income. Background info so I don't drip feed...she went through a messy divorce and it was a hard time for her and started from scratch and so I am possibly being over worried and should leave her to get on with it.

Today she showed me a picture of her new unit filled with stock. I commented that she had come so far in 18 months from starting a new business and claiming HB and she replied that she was still struggling financially and claiming HB as she still had a low income. She did rather well over Christmas and has reinvested her profits in stock and rent on the unit.

So she is spending profit on stock to build the business while claiming a low income. I told her I think she will get in trouble but she said it was fine.

AIBU to think that this could land her in a lot of trouble?

OP is worried that her cousin is making a mistake that could come back to haunt her. A nice cousin to have, in my view.
And you're right, OP. Reinvesting is NOT a business expense for benefit purposes even though it can be for tax purposes. Other posters might think that is unfair but it IS the law. And it remains the law even if the consequences of her not reinvesting are that she is unable to escape the poverty trap and remains on benefits for longer.
I wouldn't report her but I would explain your concern and get her to visit an accountant. His or her fees will be an allowable expense (for tax, NOT benefit). She really needs to sort this. The consequences of not doing so could be a conviction but almost certainly a substantial recoupment and perhaps a fine. It's just not worth the risk.
She's lucky to have you watching her back.

Gosh....If I was the op, I'd really be struggling to give a shit to be honest.

the stock she has bought will increase her closing stock figure, it will not reduce her profit figure as the value of the stock she holds will count as profit

If I buy stock - and I could buy a lot of stock, that would reduce my profit as it's an expense. It would help my business grow.

Maybe I should spend a lot of my business profit on stock, reduce what I pay myself and make up any difference from the benefit system?

It would certainly help me grow.

yes, use the benefit system to grow your business.....alternavively,what are business loans for??

yes, use the benefit system to grow your business.....alternavively,what are business loans for

I used business loans and credit cards. It didn't occur to me to use the benefit system.

If I buy stock - and I could buy a lot of stock, that would reduce my profit as it's an expense.

Nope. If you spend £10,000 of your accumulated profits on £10,000 worth of stock then you have exactly the same as you started off with -£10,000 worth of assets in the business.

The £10,000 'expense' incurred by buying stock is exactly mirrored by the £10,000 worth of stock now on the balance sheet.

The £10,000 'expense' incurred by buying stock is exactly mirrored by the £10,000 worth of stock now on the balance sheet

If I spend money on stuff that I need for my business - in my case - equipment (it won't be sold, but needed for my business and would help it), surely that expense would reduce my profits as it's a business expense? I know it's an asset - but when I declare my profits for tax purposes, hasn't that expenditure reduced my profits for tax purposes?

If she is self employed and not making a profit after expenses (which can include stock afaik) then she is well within her right to claim what she is entitled to. As long as she's completing her tax return accurately then frankly it's none of your business, pun intended. Keep your nose out

I have to be honest and say I was not on benefits when I grew my business because we had savings but I can see that income would be low enough to claim some sort of help in the first few years?

I'm confused now but as long as she has been honest isn't it up to the benefit in question to decide what she is entitled to?

amispartacus
I think you are confusing stock and fixed assets, they are different things and treated differently in accounts.

Er... No BravoPanda. You are confusing HMRC rules with DWP rules. The difference could be a criminal conviction.

Tuckers, for tax purposes she could be using the cash scheme (fairly new and only for smaller businesses) which means the purchase of stock would reduce her taxable income.

I believe that the taxable income is what is used to calculate benefits.

amispartacus, if your turnover is less than IIRC £80,000 then yes, equipment can be claimed as an expense against tax, based on the cash scheme (subject to some rules, eg cars cannot be claimed in that way).

Under the traditional rules, equipment would be claimed over a number of years using capital allowances.

I think you are confusing stock and fixed assets, they are different things and treated differently in accounts

Maybe. I don't sell things - I sell services but use a lot of equipment. I could certainly do with more equipment. In fact, I could always do with more equipment

As pp have said the people assessing hb will be looking at her accounting, tax credits will want to make sure that it is a viable business. This basically means that she is ideally earning at least minimum wage and if not that she is building up to doing so with a good business plan etc etc.