Our website uses cookies to store information on your computer. You may delete and block all cookies from this site, but parts of the site will not work as a result. Find out more about how we use cookies.
(Do not show this message again)
Shout99 - News matters for freelancers
Search Shout99 - News matters for freelancers
(Advanced Search)
   Join Shout99  About Shout99   Sitemap   Contact Shout99 24th Nov 2017
Forgot your password?
Shout99 - Freelancers, FO35, Section 660
New Users Click Here
Shout99 - Freelancers, FO35, Section 660
Shout99 - Freelancers, FO35, Section 660
Front Page
News...
Freelancers' Shop...
Ask an Expert...
Letters
Direct Contracts
Press Links
Question Time
The Clubhouse
Conference Hall...
News from Partners
Accountants

Login
Sitemap

Business Links

Shout99 - Freelancers, FO35, Section 660

Freelancers' Shop

Personal Financial Services
from ContractorFinancials

Mortgages

Pensions

ISAs

Income protection

... and more special offers for Shout99 readers in the Freelancers' Shop

Shout99 - Freelancers, FO35, Section 660
  
Shout99 - Freelancers, FO35, Section 660

News for the
Construction Industry

Hardhatter.com - News for small businesses in the construction industry

Powered by
Powered by Novacaster
Advertisement
Brookson

Call for changes to universal credit for the self-employed
by Susie Hughes at 12:50 30/10/17 (News on Business)
The Low Incomes Tax Reform Group (LITRG) has called for changes to the universal credit system for self-employed claimants. Without such changes, the group warns that there is a very real possibility that people will be discouraged from starting self-employment and existing claimants may be forced to give up their work.

The changes LITRG is arguing for include:

  • Allowing self-employed claimants with fluctuating income to average their income over a period of up to a year
  • Changes to the calculation of the ‘minimum income floor’ and increasing the start-up period during which it does not apply from one to two years
  • Greater consistency in definitions of self-employment
  • More specialist support for self-employed universal credit claimants.

LITRG began to raise concerns about self-employment in universal credit when the universal credit White Paper was first published and the Welfare Reform Bill began its passage through Parliament in 2011. Although some minor changes to the rules have been made since then, many of the major concerns remain. At present, the system does not work well for self-employed claimants who have fluctuating income and/or expenses, or who have a large, one-off business expense in a particular month, nor does it give people long enough to establish and grow their business.

Shortcomings
The report from the tax pressure group summarises the main shortcomings of the current universal credit system in respect of the self-employed and suggests positive reforms that would encourage entrepreneurial activity and relieve administrative burdens. The LITRG model aims to treat all self-employed people fairly and ensure greater parity with employed people earning similar amounts.

LITRG Chair Anne Fairpo said: “The last 10 years have seen a significant rise in the number of people who are self-employed, many of whom are on a low income and therefore unable to afford professional advice. Universal credit is gradually replacing working tax credit as the primary welfare support for low income working-age people.

“We have been raising concerns with both Parliament and Government about the proposed treatment of the self-employed under universal credit since 2010. The universal credit assessment period is one month as against one year for tax, definitions of income and profit from self-employment differ for universal credit and tax, and universal credit operates a cash basis which diverges from the cash basis option for tax.

Advertisement
“Perhaps the most concerning part of the self-employment regime under universal credit is the minimum income floor which fails to account for fluctuating earnings or one-off large business expenses. This can lead to a situation where a self-employed claimant with fluctuating earnings can receive substantially less universal credit than an employed claimant earning a similar annual income above the level of the current minimum income floor. We cannot believe that is an intended consequence. From April 2018, the universal credit system will become far more complicated with the introduction of surplus earnings rules for both the self-employed and employed and in some cases this will make the disparity worse.

“In exploring the implications of the concept of parity between the employed and self-employed under universal credit, this report contributes to the wider debate, that is already underway but needs to be continued in earnest, about the need for greater coherence in policy making on how the tax and welfare systems should apply to the rewards from work, whether classified as employment or self-employment or any other category of work.

“Our report doesn’t seek to start from the beginning, instead we set out our own diagnosis of what is wrong with the current system and we propose what we believe to be a workable alternative which can be achieved through changes to the existing system. Our model attempts to preserve the current incentives for entrepreneurial endeavour, brings greater parity between the employed and self-employed and safeguards public finances against abuse.

“Without further changes, there is a real risk that those thinking about starting out in self-employment will be dissuaded and those already in self-employment may be forced to give-up before they have been given a chance to grow their businesses. We urge the Government to consider our recommendations carefully and make the necessary changes to the existing rules.”

Recommendations
The report recommends:

  • In each Jobcentre office, a small number of staff should undergo specialist self-employment training to become ‘subject experts’ with access to a central expert team who are supported by HMRC.
  • Self-employed claimants should see a work coach at least once every 12 months to ensure compliance with the gainful self-employment test. There should be consistency to ensure that claimants who are classed as self-employed by HMRC are also self-employed for universal credit purposes. All claimants passing the test should have the opportunity to access business support from a trained Jobcentre adviser.
  • The current one year start-up period should be extended to two years.
  • A general anti-abuse provision should ensure people cannot manipulate their income in order to claim universal credit or more universal credit. This would apply to both employed and self-employed claimants and would remove the need for the complex surplus earnings rules that are due to come into force from April 2018.
  • Self-employed claimants with fluctuating income or profits should be given an option of averaging their income over a period up to one year.
  • All definitions should be fully aligned with the HMRC cash accounting rules and thought should be given to how the system can deal with those who are unable to use the HMRC cash basis for tax purposes.
  • In cases where earnings are averaged, we propose that the system of reporting monthly income and expenses should be changed so that it follows the period of which earnings are averaged.
  • The minimum income floor should remain from Year 3 onwards but should be calculated after deduction of pension contributions as well as tax and national insurance. This is to ensure self-employed claimants are treated as favourably as employees who make pension contributions.
  • Two exceptions should be made to the minimum income floor. First, a three month grace period in each 12 month period to allow someone to deal with unexpected events or a one-off large expense without any adverse impact. Secondly, we propose a discretion for DWP staff to dis-apply the minimum income floor in certain situations.

--
If you wish to comment on this article, please log in and use the Reply button below. Registering is free and easy - see 'Join Shout99'.
-
Susie Hughes © Shout99 2017

Printer Version

Mail this to a friend

Copyright 1999-2015, Shout99.com | All Rights Reserved | Legal Notice
 

Advertisements
advert
advert
advert
advert