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Universal credit rules hit self-employed

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27th Jun 2012
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Draft regulations setting out conditions and procedures for claimants of the proposed Universal Credit (UC) will impose new reporting requirements that put the self-employed at a disadvantage, tax advisers are warning.

Gabelle’s Paula Tallon, a member of the ICAEW’s SME tax committee sounded the alarm this week after reviewing the draft regulations and 59 pages of accompanying notes.

“The purpose of the universal credit is to simplify the benefits system, but what is causing concern is how self-employed individuals are required to report their income.  The reporting requirements are different to those currently being consulted on for small businesses. It makes no sense to introduce another system.  These proposals are unworkable and will hit the self-employed severely,” Tallon told AccountingWEB.

“The new UC regulations will actively discourage self-employment and undermine the policies of reducing administrative burdens on small businesses. For low earners this is no incentive to start a new business.”

The Welfare Reform Act 2012, passed in March, paved the way for reforms to the benefits and tax credits system by combining benefits for the employed and unemployed into a single system.

Those eligible for UC who are in employment will receive monthly benefit payments based on their earnings in the previous assessment period, calculated from figures supplied via HMRC’s real time information (RTI) system. Anyone earning income outside of PAYE will have to declare those earnings separately.

There will be a minimum income floor to limit the amount of UC a self-employed person can claim. This threshold is intended to prevent UC from subsidising non-viable or low-paying businesses. Those launching new businesses will be entitled to a once-only start-up period where they will be excused the DWP’s usual work search/availability criteria.

Under the proposed procedures, earnings from self-employment will be reported montly to the DWP on a simplified cash income basis, via an online tool that will ask them for their total business income and details of outgoing payments under seven defined expense categories.

If a claimant does not report his/her income within seven days of the period end, their payment will be suspended. UC benefits will be withdrawn if the claimant fails to make an income report within four weeks.

“The seven-day deadline is really tight, and the way information is required is different to the existing GAAP rules and those being proposed under the new cash accounting approach. Businesses already provide information to HMRC, and now they’re getting a completely different system recording something else. Why have a parallel system? There’s no consistency,” Tallon said.

 “There are a lot of other flaws,” she added, highlighting points that were raised by other ICAEW SME committee members:

  • Potential discrimination against businesses with no internet access, including security concerns for those who may have to use public computers to submit their monthly income reports
  • No formal document exists to provide the required “proof of tax registration with HMRC”
  • Ongoing uncertainty for workers about whether their employer is treating them as self-employed; they may not be aware whether or not their earnings are reported via RTI, leading to potential loss of benefits
  • Ambiguity over the definition of people who are “in a position analogous to that of a sole owner or partner in the business”.

The draft Universal Credit Regulations 2012 published on 15 June were drafted under the powers of the act are likely to come into effect by August, but given the scope of the changes, the Social Security Advisory Committee (SSAC) headed by former HMRC chair Paul Gray has been asked to seek evidence on the measures before implementation. The deadline for responding is 27 July and Tallon is keen for the profession to express its misgivings about the UC regulations to the DWP.

“Accountants  outraged at the proposals should feed their comments to their professional bodies so representations can be made,” Tallon said.

Replies (58)

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By johnjenkins
05th Jul 2012 12:01

Methinks

you live on a different planet, Steve, no dis intended. How could you possibly outlaw a painter painting a house for a mechanic that maintains his car etc. etc. etc?

Whilst we are on the subject of fixing the world - we need to stop all those in power thinking the rest of us are mugs.

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Replying to Glennzy:
By Steve-EBL
06th Jul 2012 13:56

Planet hopper

johnjenkins wrote:

you live on a different planet, Steve, no dis intended.

 

 

 

Your example already happens doesent it?  I dont think a bloke who works at Toyota is going to give a Car in exchange for a Fitted Kitchen from a bloke that works at B&Q.

 

Its good up here on Venus :)

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By johnjenkins
05th Jul 2012 14:41

Yer right OGA

You honestly think you would be left with £990 out of £1000?

Many ideas in theory are brilliant but when it comes down to practise, it is a totally different thing.The stumbling block is what the deduction would be and how you could stop government raising it whenever they wanted to. At least at the moment we have a variety of ways paying tax and the means to avoid paying the most.

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Replying to Tim Vane:
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By User deleted
05th Jul 2012 16:06

yes ...

johnjenkins wrote:

You honestly think you would be left with £990 out of £1000?

Many ideas in theory are brilliant but when it comes down to practise, it is a totally different thing.The stumbling block is what the deduction would be and how you could stop government raising it whenever they wanted to. At least at the moment we have a variety of ways paying tax and the means to avoid paying the most.

 

... because Tesco will be left with £9,900,000 out of £10,000,000 - not £9,999,990 as at present! (precisely because they can't avoid it)

As for governments, that's a different discussion for another day. Do you really think governments don't manipulate tax to raise cash when they want? This way the burden is spread more fairly. At present 80% of the tax is taken from the 80% of the population who only actually earn 20% of the money!

(before anyone starts, I made the figures up for illustrative purposes only, but can't see them being far out)

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By johnjenkins
05th Jul 2012 16:25

@Steve

If you get on Higg's Bosun you might well end up in Venus. Yes bartering does go on in a small way, but it could escalate.

@OGA going for a pint now, lets hope they don't give me 9/10's

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By old banger
29th Jan 2013 23:13

selfemployed and uneversal credit

   Am i to understand that the m.i.f will probably be 6.19p x reported hours or will m.i.f be 6.19px35hrs.So that anyone earning less than 216.65p cant be classed as selfemployed.They have said they are still deciding m.i.f . My gut feeling is the uneversal credit system system is going to be delayed due to alot of top civil servants involved in  i.t system resigning.Also i.d.s has said we are going to roll out uneversal credit slowly in a sensible manner. That sounds to me an excuse for a delay.Allready the benefit cap  for families has been put back 6 months.

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By Anneliese
05th Mar 2013 12:34

This just can't be right....

I am a self employed single mother who works as a bookkeeper approx 25 hours a week - my annual expenses almost outweigh my profits but due to my single parent duties and required hours from prospective employers am not able to find an employed position.  I receive tax credits and am extremely grateful for them.  We would be homeless without them, especially as my income fluctuates greatly throughout the year.

If I had to do monthly reporting I would never earn the lower floor limit to receiving the tax credits.  We would then be at the mercy of a neverending spiralling debt situation which at present I am doing my very best to avoid.

Recently the Government were encouraging mums back to work, a lot of whom started their own small enterprises - I suspect they would all find themselves in a very similar situation.

 

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By mark22
09th Mar 2014 09:28

When?

This one seems to have gone quiet...is it in place yet? What are the day to day requirements?

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