How to define Income??

[campbeji]

Hi all,

I'm not sure if this is the correct forum for this post, if not I apologise.

I had a conversation with an acquaintance a few days ago and something he told me has been bouncing about my head, it doesn't seem right to me, but I can't think of a good reason why so I thought I would ask the more knowledgeable people on here.

Anyway, I was talking to this guy about holidays, I said I usually spend money using my Revolut card, and he then pulled out his credit cards (about 6 or 7 of them) and said that he used a specific one, a sleek black thing. I said something like 'That looks expensive, how'd you get all those cards'. Cutting a long story short. He basically said that when he applies for cards he uses his income from his self-employed business as his personal income that he puts down on the application form.

So his business has an income of about £120,000 out of which comes the costs and expenses of running the business. I don't know what the business profit would be. I thought this was a bit weird, but his justification was that the government does not make a distinction between him and his business as he is self-employed and that the business income and expenses are his income and expenses.

I don't use credit cards very much, just as an emergency backup, so I don't know much about how they work. I was interested in what he was doing as he seems to spend everything on his cards and he gets travel points from them that he uses for free holidays, and he goes on a couple of good holidays a year and I always wondered how he did it, I always assumed he had a rich wife or had a side hustle in the recreational white powder industry.

Anyway, I checked out a few application forms for these sorts of cards and could not find anything that said how you should define your income.

Does any of this make sense, I'm not sure I have explained it very well, but what are your thoughts?

Thanks
Jim

 

[Joyous]

So his business has an income of about £120,000 out of which comes the costs and expenses of running the business. I don't know what the business profit would be. I thought this was a bit weird, but his justification was that the government does not make a distinction between him and his business as he is self-employed and that the business income and expenses are his income and expenses.

This is correct. As he is self employed he and his business are one and the same. The £120k less business expenses is his income.

 

[campbeji]

This is correct. As he is self employed he and his business are one and the same. The £120k less business expenses is his income.

Thanks Joyus,

So just to clarify, on the application form for a credit card can he put £120,000 for his income or should it be the £120,000 - business expenses, eg £40,000 or whatever. He said he used the £120,000.

Jim

 

[Joyous]

Thanks Joyus,

So just to clarify, on the application form for a credit card can he put £120,000 for his income or should it be the £120,000 - business expenses, eg £40,000 or whatever. He said he used the £120,000.

Jim

The PROFITS of the business are his income. You need to check what the form requires. I have seen some forms ask for turnover rather than profit - very rare but I have seen it.

 

[campbeji]

Hi Joyus,

The forms ask for income, they make no mention of turnover or profit, which is why I am asking about the definition of income in terms of a self-employed person. The forms may make this clear in the depths of the small print, but I haven't checked that in detail.

I understand what you are saying that the profits of his business are his income, but his attitude is that since he and his business (in terms of money), are one and the same, then his income is the money that comes into him. With my limited knowledge I couldn't think of a sensible argument against it.

Jim

 

[WaveJumper]

"but his attitude is" its not attitude as already mentioned above its fact

 

[campbeji]

Hi WaveJumper,

I'm not disputing that, I'm just trying to understand. If a self employed business persons finances are not considered to be separate from the business itself, then where does the definition of income say that it is after the business expenses have been paid out and not before.

Jim

 

[campbeji]

I have done a bit more research and on the .gov.uk website it seems to say that income for a self employed person is considered to be

• earnings before tax and National Insurance if you’re self-employed - check your Self Assessment tax return

I'm part of a partnership rather than self employed so I am not that familiar with the forms so I don't know if the 'earnings' field on the SA is before or after the expenses. Is there a separate form for Self Employment or is it part of the personal form.

Jim

 

[Newchodge]

If I apply for a card my income is all of the money I have coming in. My expeniture (housing, utilities, motoring, food etc,) are not relevant. But I am not self employed. I assume your friend is working on the same basis. If my income figure ignores my expenditure, why shouldn't his?

 

[campbeji]

Hi Newchodge,

I'm pretty sure that's the way he was thinking about it. It just seemed a little 'tricky' to me but maybe that's just me. I've never heard of it being mentioned anywhere and it made me curious.

Jim

 

[fisicx]

Does it even matter? Open banking means the banks have access to all sorts of data. As long as the figure you put in the box relates in some way to the data the bank has access to then it’s all good. If they don’t like the numbers you don’t get the credit card.

As to you not using yours, I use mine for everything. It gives me all sorts of protections and earns me money. I’d be daft not to use it.

 

[campbeji]

Hi Fisicx,

I don't know if it matters or not. If he put his income in as £120,000 rather than his profit of £45,000 (or whatever it was) would that make a difference, I don't know, I have very little knowledge of how Credit Card companies work.

I don't use mine much, mostly for when I'm booking holidays etc and for emergency things like car repairs etc. I don't get a lot of protections with mine and it certainly doesn't earn me any money After talking to the guy I have mentioned I have been thinking of getting one of the travel points cards, that might be fun, i'd like a free holiday or two every year.

Jim

 

[fisicx]

Credit card companies aren’t too bothered about the actual income as long as it meets their minimum criteria. Your credit score is more important. And you can boost that by having and using credit cards and paying off the balance. Even better if you have a loan.

 

[campbeji]

I'm going to have a look at it in more detail and maybe apply for one of those cards. I have never really bothered with credit cards or loans in recent years. I managed to really stuff up my finances 20 odd years ago with credit cards and store cards, but I am a wee bit more responsible now. I don't think I have ever had a loan, apart from the things you get through Paypal.

I think my credit rating is pretty good now, it used to be awful.

Jim