Self-Employment Income in Visa Applications (by a Self-employed immigration adviser). CPD 6 hours.

This course addresses the Rules, issues and documents, which are required for the visa applicants who are self-employed, such as a Sole Trader or an owner of a limited company or a partner in a partnership or  an LLP. We explain how to apply the Rules for self-employed people who are applying for a Spouse/Partner visa including the difference when self-employment was in the UK and outside the UK, when applying for Entry Clearance or Leave to Remain. Plus for those applying for ILR based on Tier 1 (General) and for those applying under the European/EEA law, such as family members applying for Residence Card (EEA FM) or permanent residency (EEA PR)  for both EU/EEA nationals and their non-EU family members. We also explain how a term 'self-employed' differs for HMRC/accountants and for the Home Office. Finally, we include case studies from our extensive experience.

Last update: March 2017. Our CPD provider ref number is 80001, which will appear on your certificate upon completion of our courses. Our CPD training is accredited by the CPD Standards Office and is accepted by The OISC towards your annual CPD credit. If you are preparing for your first OISC accreditation then your CPD credit will be counted from the date of accreditation. If you are already an OISC-accredited adviser then this course will credit the CPD hours.

 £199 + VAT = £238.80

Discount Code:
 


By clicking the Buy button I accept the Conditions

1. Course material - download as PDF after payment. We use PayPal to process cards but you don't need to have a PayPal account, only a credit/debit card.

2.Study in your own time from any computer or iPad or iPhone. This course contains approx 70 pages in a PDF format.

3.Complete the test, link will be automatically sent to you, and email back to us.

4.You need to score 70% in the test to be awarded CPD hours.

5.We'll send you certificate with our CPD provider ref number so you claim your CPD hours with The OISC.

  • Contents
  • Objectives
  • Extracts
 

PART 1: ALL IMPORTANT BASICS

There are 2 definitions of a word ‘self-employed’ | It is crucial to establish the exact legal form of the applicant's business | The most important principle | Do not be put off by the long list of documents required for self-employed people. First establish if one meets the financial rule in general, and then get stuck in the documents

PART 2: SOLE TRADER

FINANCIAL YEAR

WHAT TAXES DO SOLE TRADERS PAY?

Class 2 National Insurance | Class 4 National Insurance | Is National Insurance a tax? | Income Tax

TAX RETURN, SELF-ASSESSMENT AND RELEVANT HMRC FORMS

Tax Return form SA100 | HMRC Tax Calculation form SA302 | HMRC Statement of Account form SA300 - now called Tax Year Overview

WHEN TO PAY TAXES?

1st year | Subsequent years | What if your earnings rise? | What if your earnings fall? | Can you stop payments in advance?

PART 3: Using SOLE TRADER’s income for a Spouse/Partner and Fiancée visas

PERIOD OF ASSESSMENT

Financial Requirement is based on a last full financial year, not last 12 months | What is meant by a ‘full financial year’? | What if one became self-employed and does have a ‘full financial year’ yet? | Which financial year do we count? Since the deadlines for submitting a tax return is almost 10 months later? | COMMON QUESTION: do I need to pay taxes before applying for a visa? | CASE STUDY: Japanese spouse of a UK citizen who worked as self-employed in the UK and had to submit a tax return

CALCULATING INCOME

What is considered as income? | Can it be combined with other sources (salary, pension, savings etc)? | CASE STUDY: Filipino wife of a UK citizen, switching from a Tier 4 visa after it expired (before November 2016). The Sponsor was self-employed but did not submit a tax return yet. Interestingly, the same couple applied for extension 2.5 years without our help and were given a visa in the 10-year route | CASE STUDY: American wife of a UK citizen, switching from a Tier 4 visa. Financial Requirement was met by the Sponsor getting a basic job and working for 6 months (because his self-employment was a long way away from the end of a financial year) | Can 2 partners combine their income if one or both are self-employed? | CASE STUDY: the same Japanese spouse of a UK citizen (as above) - 2.5 years later (extension). Combination of the Sponsor's self-employment and the Applicant's employment income

SELF-EMPLOYED SPONSOR RETURNING TO THE UK with a foreign spouse/partner

CASE STUDY: American husband of a British citizen who was self-employed in the USA, returned to the UK, was offered a job with the NHS but the job did not start within 3 months

NOTES ON SPECIFIED DOCUMENTS

 

PART 4: Using SOLE TRADER’s income in EEA applications including EEA Residence Card, Permanent Residency and British Citizenship based on them (EEA1 - EEA4 and Naturalisation)

CASE STUDY: National of Chile married to a German national applying for an EEA Residence Card (EEA (FM)) who was both employed and self-employed  | CASE STUDY: Israeli national married to a Spanish self-employed artist who was refused an EEA Residence Card because of not submitting a tax return by May | CASE STUDY: Bulgarian self-employed cleaner applying for British Citizenship together with her UK-born daughter | CASE STUDY: Bulgarian self-employed plumber applying for an EEA Family Permit for a Russian wife

 

PART 5: LIMITED COMPANY

Why ‘Limited’? | Limited company is a separate entity from its owner (but many of your clients will be confused)

WHO OWNS A COMPANY? (And it is not the directors)

FINANCIAL YEAR

What if one is both a Sole Trader and has a limited company?

KEY DATES

Date of incorporation | Accounting reference date | Period covered by the annual accounts  | Date when annual accounts are due | Date when tax is due

COMPANIES HOUSE WEBSITE

WHAT TAXES DO COMPANIES AND DIRECTORS/OWNERS PAY?

Corporation Tax | Value Added Tax (VAT) | Company Directors pay usual employment taxes | Company owners (shareholders) receive dividends and pay Income Tax | Why is it important?

ANNUAL ACCOUNTS AND CORPORATION TAX RETURN

Annual Accounts | Audited and Unaudited accounts | Balance Sheet | Profit and Loss Account | Corporation Tax Return

CORPORATION TAX (CT) FORMS

CT600 | CT603 | CT620

 

PART 6: Using income from a LIMITED COMPANY for a Spouse/Partner and Fiancée visas – COMPANY REGISTERED IN THE UK

Specified limited company

WHAT IS CONSIDERED AS INCOME?

Director’s salary | Common question: what if a director wants to use only salary and has enough to meet the Financial Requirement? Can he/she use a Category A/B instead of F/G? | Dividends | Gross salary | Net salary | Difference between a gross and net salary | Gross and net dividends from 6 April 2016 | Gross dividend | Net dividend | Gross and net dividends - old system before 6 April 2016 with tax credits | Gross dividend before 6 April 2016 | Net dividends before 6 April 2016 | Dividends can be combined with director's or can be used on their own

NOTES ON SPECIFIED DOCUMENTS

CASE STUDY: Syrian wife of a UK citizen. The Sponsor was working as a contractor using his own limited company in the UK

 

PART 7: Using income from a LIMITED COMPANY for a Spouse/Partner and Fiancée visas – COMPANY REGISTERED OUTSIDE THE UK (Sponsor returning to the UK)

CASE STUDY: Canadian – British couple who lived in Canada for 20 years and now returning to the UK together. Financial Requirement was met through the British Sponsor employed by the Applicant’s own company in Canada, plus a new job in the UK

CASE STUDY: Israeli wife and 2 children of a UK citizen who always lived in Israel and now returning to the UK together. Financial Requirement was met through the British Sponsor’s earnings from his own company in Israel, plus a job offer in the UK

 

PART 8: Using income from a LIMITED COMPANY for a Tier 1 (General) visa and ILR based on it

CASE STUDY: Nigerian national with earnings through his limited company, plus a spouse switching from Post-Study Work (and 2 children on visas dependent on the spouse’s) | Notes on specified documents

CASE STUDY: Indian national who paid himself a salary, dividends and expenses in one payment, so income amounts didn’t match bank statements

TIP: give your client a template of accountant’s letter

CASE STUDY: South African national who claimed earnings from his limited company, without realising his company had been dissolved

CASE STUDY: Malaysian national who miscalculated the period of Previous Earnings (and didn’t have enough points until more dividends were added)

 

PART 9: Using income from a LIMITED COMPANY in EEA applications including EEA Residence Card and Permanent Residency

CASE STUDY - Romanian national who has been working since 2004

 

PART 10: Agency work and being paid by an ‘Umbrella company’

Employment | Self-employment | Counting income on a payslip produced by an umbrella company | Which period to cover? | Umbrella companies based in the Channel Islands

CASE STUDY: Rwandan wife of a UK citizen, applying for a Spouse visa. Financial Requirement was met through working through an agency and paid by an ‘umbrella company’

CASE STUDY: Nigerian national extending a Tier 1 General visa using earnings from an umbrella company

 

PART 11: Partnership and Limited Liability Partnership (LLP)

PARTNERSHIP

Income from Partnership for Spouse/Partner visas | Income from Partnership for Tier 1 General visas

LIMITED LIABILITY PARTNERSHIP (LLP)

Income from an LLP for Spouse/Partner visas | Income from an LLP for Tier 1 General visas

 


 

With more and more people working as ‘freelance’ or a ‘contractor’, and with more people than ever starting their own businesses, today’s Immigration Adviser has to know how to assess income and finances of those who work for themselves. With employed people it’s more or less simple – they get a salary. So, what do self-employed people get?

We all know the general differences between ‘being my own boss’ and ‘having a job’. I’ll attempt to make a light joke: “Self-employed people call work ‘doing what I love’, have only themselves to answer to and are so rich their life is a non-stop holiday”. As a business owner myself, I would love the 1st part to be true but of course the reality is very different.

The subject of this course is about another major difference: how to assess earnings of a person who works for him/herself when applying for a UK visa? Spouse/Partner/Fiancée visa rules require a minimum income threshold of £18,600 per annum (more if children also need visas). Those who are exempt, which is those in receipt of disability benefits, still have to meet the Maintenance requirement (I call it ‘Old Maintenance requirement’ because it was the only one before 9 July 2012). Tier 1 General visa rules have a points table for Previous Earnings, so an applicant has to score enough points to meet the passmark.

In my extensive experience of visa applications I noticed that ‘self-employment’ tends to have a separate place in the rules and policies, often not as detailed as the rules on employment. Almost like the policy makers are trying to avoid it. Some Rules are certainly in favour of employees, example will be forcing self-employed people to wait until the end of the financial year before applying for a visa to bring their partner to the UK, that’s while employed people can use earnings ‘in the last 6 or maximum last 12 months’.

Perhaps this can be explained by the fact that the immigration policies are written by the employees (of the Home Office) who most likely never run their own businesses. While there is nothing wrong with that (stress of having own business is certainly not for everyone), it makes it harder for immigration advisers and immigration solicitors to help their clients. Sometimes the Rules aren’t logical to a self-employed immigration professional, like me, who has practical knowledge and experience of his/her own ‘working for yourself’.

I also find advisers can be nervous to take a case because they don’t have relevant experience and often don’t have a manager who could guide them (because a manager is often an employee too). Our company 1st 4Immigration was audited by The OISC in the winter 2013/14 and the auditor said she heard advisers from other companies saying on the subject of self-employed clients “We need an immigration adviser ourselves” (to guide on the Rules).

Self-employment, however, tends to produce a great deal more questions from the clients while the UKBA Rules tend to be less clear (the UKBA staff are employees, not self-employed!). This material is written by me, Natalia Andrews, and I happened to be both self-employed and an experienced immigration adviser, accredited by The OISC. Natalia is well-aware of the differences between employment and self-employment (including ‘employment in reality but self-employment on paper’ known as contracting). Plus of the differences between a limited company and what HMRC calls ‘self-employment’ (sole trader, as ‘yourself’ without a company). One of the most common questions we have from clients is “I am employed but by my own company, can I use an Employment category?” This is to avoid waiting for the end of a full financial year, which happens to many young self-employed people who recently started a business or started it following a redundancy.

As it happens in the real practice, the clients have situations which are not necessarily described in the Rules. For example, there are extensive rules on the documents needed for directors of the companies registered in the UK. However, until April 2013 there was no mentioning at all about directors of companies registered outside the UK, such as when both British and foreign spouses were returning together to the UK after living abroad. Back then we were advised by the UKBA (in an email from the Policy Department) that we should use the same logic as for sole traders, ie based on a full tax year. However, in April 2013 the Policy Guidance (still not the Immigration Rules) appeared to have a small extra paragraph saying directors of overseas companies should use employment and/or non-employment categories instead of self-employment (unlike directors of companies based in the UK). Two applications lodged at the time now make great case studies.

From PART 1: ALL IMPORTANT BASICS

There are basic principles you need to know and once you know them, the whole subject of self-employment becomes a lot clearer.

There are 2 definitions of a word ‘self-employed’:
One is used by the UKVI and the other one is used by HMRC (tax authorities) and accountants.

It is crucial to establish the exact legal form of the applicant’s business:
Sole trader, limited company or a partnership. Or being paid a ‘salary’ through an ‘umbrella’ company. The visa requirements vary a great deal for each of these.

There is no such thing as ‘Working for them as self-employed’. There are no official terms of ‘Contractor’ or ‘Freelance’. A contractor or a freelance worker can be a Sole Trader or can have a limited company. This is what you need to establish and then require the documents according to the Rules.

The most important principle:
Income of a self-employed person is based on what he/she personally gets from the business, not on what the business gets from the clients. The UKVI are not interested your company received millions of Pounds, they’re interested how much of those is left after all your expenses and liabilities. And not to forget how much you declare of the same to HMRC when submitting tax return (or a Corporation Tax return in case of a limited company).

For example, if you are an employee you are paid a salary and your employer has to deduct some money in tax, before paying you what’s left. Not because your employer is horrible but because it is a law. Wouldn’t it be great to deduct some expenses first? To deduct your rent and bills before having to pay tax? Or transport to work and money you spend on lunches, arguing that these expenses are directly related to your ability to perform your work? Of course it would be!

However, as an employee you don’t have such an option while business people can deduct business expenses (related to the business that is), before they have to pay tax. This is one of the main advantages of working for yourself. This is also the most fundamental principle in the visa applications: look at profit, ie what’s left after the expenses.

From Part 2: SOLE TRADER

A sole trader, or a person who is self-employed as him/herself, has to register with HMRC when he/she starts self-employment, usually within 3 months. HMRC sends a ‘welcome letter’ confirming his/her Unique Taxpayer’s Reference (UTR). This is different from a National Insurance number. HMRC also instructs to pay Class 2 National Insurance, applicable only to the sole traders (more on this later).

A sole trader can trade under his/her own name, such as John Smith. Or can trade under some business name, such as John Smith trading as Great Company, it is a matter of choice.

FINANCIAL YEAR

Sole trader’s financial year always runs the same as the UK government’s tax year, from 6 April to 5 April. This is a period for the purpose of a tax return and tax liability.

When one starts being a sole trader, his/her 1st year will be from the date of

commencement self-employment to the nearest 5 April. This can be almost a whole year if one registers in April or can be a short ‘year’ of just a few days if one registers in March because a ‘year’ (ie a reporting period) always ends on 5 April.

At the end of a tax year HMRC kindly sends a demand to complete and submit a tax return, known as Self-Assessment or Self-Assessment Tax Return. There is a generous deadline for submitting it: 31st January next year for online submission (31st October same year for paper submission).

Let’s imagine you registered as a sole trader on 1st August 2013. Your 1st reporting year will be from 1st August 2013 to 5 April 2014, or 2013-14 tax year. Shortly after 5 April 2014 you’ll receive a letter from HMRC with a tax return form, for the period ending 5 April 2014. You’ll have time until 31st January 2015 to submit it online on HMRC website (31st October 2014 for paper submission).

WHAT TAXES DO SOLE TRADERS PAY?

Class 2 National Insurance:
Class 2 is unique for sole traders (and partners but more on partnerships later). It starts from the moment of registering with HMRC. Amount is fixed per week, in 2014-15 tax year it is £2.75 per week.

These payments are usually collected monthly by direct debit or quarterly by HMRC sending a bill. Sometimes HMRC sends a bill every 6 months. This does not directly depend on how much money a self-employed person makes. However, if one expects his income to be very low (there are thresholds for that) he/she can ask HMRC for exemption. But remember ‘small earnings’ is usually bad news for a visa application when minimum income is required.

Class 2 NI is very important because the UK Visas & Immigration tends to consider it as an important indication of continuing self-employment. Class 2 NI is not a part of a tax return.

Class 4 National Insurance:
Here amount depends on a sole trader’s earnings, so can be from 0% to 9% depending on the earnings in a relevant tax year. It actually goes down to 2% if one’s earnings move to a higher tax rate band (but it is where income tax goes up from 20% to 40%, so the total tax bill goes up from 29% to 42%).

Is National Insurance a tax?
Depends on what is meant by ‘tax’.
It is a deduction from the earnings, it is compulsory by law and the money goes to the government. Then the government uses it to fund the public services like healthcare and pension. So, from the point of view of common sense it is a tax in all but name.

TAX RETURN, SELF-ASSESSMENT AND RELEVANT HMRC FORMS

At the end of each tax year, ie shortly after 5 April, HMRC sends request to submit a Tax Return to all registered Sole Traders. This is probably one of the saddest days of a year.

Tax Return form SA100:
This is an actual tax return, so a Sole Trader is asked questions about income and expenses from his/her business activity. It just as well covers all other sources of income in that tax year, such as rental income from property or interest from savings etc.

If one happened to be also employed for the whole or part of the year, this will be added too. So, this is a point where all sources of income are combined in one paper, so HMRC could accurately tax the person in question. For example, if you had employment and self-employment income, they are added together and you only get a tax-free allowance once, not per source.

Tax return-related forms tend to start from SA, which stands for Self-Assessment and whish is an official name for a tax return. You are asked to self-assess your income in the tax year.

HMRC Tax Calculation form SA302:
A very useful form for immigration advisers! And often required by the Immigration Rules, especially for a Spouse/Partner visa.

When one has submitted a Tax Return to HMRC, they process it and produce this form. It lists all sources of income, based on your tax return, and then advises how much one has to pay to HMRC (or get a refund as the case may be). Tax liability here will include both Income Tax and Class 4 National Insurance for self-employed (but not Class 2). This is the best form to assess earnings of a Sole Trader. There will be a line on this form called ‘Profit from self-employment’ and this is what you need to establish how much this person earns. Just by looking at that one line you know whether he/she meets the Financial Requirement for a Spouse/Partner visa, for example. This is what I mean by such initial assessment taking just a few seconds.

So, if this form says ‘Profit from self-employment - £18,600’ or more then you know the rule is met, in principal. After that you can spend hours checking all the details in the documents and ask for the missing ones, as it usually goes. But if that line says profit was below £18,600 in this example then you know the applicant does not meet the rule and in-depth check of the documents won’t change that.

With Spouse/Partner visas Sole Traders can also use an average of the last 2 tax years, if the latest tax year has not produced enough profit. In this case you find SA302 form for both years, look at this line, add amounts together and divide by 2, ie find an average of 2 years. If you get the minimum you need – the rest of the approach remains the same.

HMRC Statement of Account form SA300:
This form is like a tax statement. It says how much tax you need to pay, how much tax you have paid and how much is on the ‘balance’. Balance is usually your outstanding liability, ie how much you need to pay, usually by the next deadline. Sometimes this balance is in credit meaning you have paid too much tax and are due a refund. This form is required for a Spouse/Partner/Fiancée application, so we ask for it. We also use it in most other applications based on self-employment, including those under European law, Citizenship for EU/EEA citizens etc.

SA300 is not useful for assessment of earnings because it does not mention income at all. It only mentions how much taxes you need to pay and how much you have paid, there is no other use for it. We can only assume this is what the UK Visas & Immigration wants to see.

From PART 3: Using SOLE TRADER’s income for a Spouse/Partner and Fiancée visas

PERIOD OF ASSESSMENT

Financial Requirement is based on a last full financial year, not last 12 months:
This is because income of a self-employed person can only be judged properly by the results of the whole year for which financial statements are prepared. Counting income in the middle of the financial year does not make sense for the UKVI caseworkers because such income is not confirmed and may not be the same as later submitted for the tax purposes. Remember many want to look rich for a visa but poor for taxes. So, the UKBA simply wants to have the same income figures as you’d submit to HMRC.

What is meant by a ‘full financial year’?
Sole trader’s financial year is the same as a UK tax year: 6 April – 5 April. This is a period on which a tax return is based and which is covered by HMRC Tax calculation SA302 form described above.

It does not mean, however, that your client has to be self-employed for a whole financial year. It only means that income must be based on the last tax year (ie on the figures on the last tax return).

For example, if one registered as self-employed on 1st August 2014 then his 1st financial year will be 1st August 2014 – 5 April 2015 and if he has enough earnings to meet the Financial Requirement then it will work. Same applies if one registered just a few weeks before end of a tax year – if he/she has enough earnings in those few weeks it will be OK.

What if one became self-employed and does have a ‘full financial year’ yet?
There is no way around it apart from waiting until the end of the 1st financial year, submitting a tax return and then applying for a visa when one has all the documents, as per specified evidence.

However, it is possible to meet the Financial Requirement using other categories. For example, to find employment (ie working for someone else as an employee) , work for 6 months and qualify under the Category A. Or to use Savings, which will also allow to apply after 6 months. In some cases this may be sooner than waiting for end of a tax year.

Which financial year do we count? Since the deadlines for submitting a tax return is almost 10 months later?

This is an extremely common question! For example, a sole trader can submit a tax return for the tax year ending 6 April as late as 31 Jan a year after that. For example, for a tax year ending 6 April 2014 one has time until 31 January 2015 to submit a tax return! Well, these are HMRC deadlines. For a visa, however, the UKVI expects the information for a financial year which has already passed, even if it is a few days after that. So, when you hear ‘My accountant says I don’t have to submit a tax return yet, can I used the previous financial year?” you should say “No, we need to cover the year which has already finished. You can submit earlier than the deadline”.

As we often say “The deadline is the last day, not the only day!”

CASE STUDY: Japanese spouse of a UK citizen who worked as self-employed in the UK and had to submit a tax return

In this case the couple, a husband was British and a wife was from Japan, were very anxious about applying for a Spouse visa because the wife was refused a student visa in the past. She then was also refused a Post-Study Work visa in the UK and applied for it from Japan.

Now married, the couple were hoping to switch from a PSW to a Spouse visa inside the UK. However, the Sponsor was working as a self-employed musician and therefore, did not have £18,600 in the earnings in the last available tax year at the time (2011-12). So, we advised to submit a tax return for the year after that, 2012-13, which was due very soon anyway. As long as the Sponsor could show ‘Profit from self-employment’ on HMRC Tax Calculation form (SA302) minimum £18,600 he could meet the Financial Requirement.

Here it’s worth reminding that everyone likes to look ‘poor’ when it comes to submitting a tax return, in order to pay as little in taxes as possible. Yet when it comes to a visa application, everyone is trying to look as well-off as possible. The trick is to keep the things consistent: information submitted to HMRC has to be the same as submitted for a visa and vice versa.

The Sponsor in this case had a tax return for 2011-12 with a very small profit, so it was ‘good’ for HMRC (ie paying less or no tax) while was not suitable when it came to his wife’s visa application. When he was submitting his 2012-13 tax return, there was enough profit to reach almost £19,000.

CALCULATING INCOME

The best way to assess earnings of a Sole Trader is to look at form SA302, HMRC Tax Calculation. There will be a line on this form called ‘Profit from self-employment’ and this is what you need to establish how much this person earns. Just by looking at that one line you know whether he/she meets the Financial Requirement for a Spouse/Partner visa, for example.

So, if this form says ‘Profit from self-employment - £18,600’ or more then you know the rule is met, in principal.

The rest continues in the course.