Once you start working, you’re worse off until you earn a LOT

[AmieWhineHouse]

This post isn’t to bash anyone that knows it’s not in their best circumstances to work. I’m aware the vulnerable in society really need help and protections and I’m not against that nor do I begrudge that at all.

I am setting up my own business to begin next year - I am disabled.
My complaints are as follows:

1. I will be charged 55 pence for every £1 over my work allowance - which feels really unfair, it feels like a penalty for working.

2. If I close my claim for Universal Credit to avoid this charge it puts me in a vulnerable position

3. On top of that, my self-employed income would be unpredictable.

4. If I stayed on universal credit I’d keep my rent covered and my free entitlement to things like the dentist and glasses.

5. once deductions have come off including taxes and accounting for services I would no longer be eligible for for free I’d actually be worse off than staying on benefits

Sorry if this is confusing, I have tried to make it as clear as possible. Ultimately, It seems I’d be better off on benefits and working is a risk.

It seems that being able to do some form of work despite disabilities is a bit of a gray area and penalised?

Self employment is always a risky way of earning money wether you are claiming benefits or not.

That's the gamble of being self employed. Most people don't have any option of a safety net and just have to make the leap.

So when you work you only lose 55p of your benefits for each £you earn - you are better off working ? And that’s bad ? Are you saying they stop helping with rent the moment you get work?

As pps say, that’s self-employment for you. Consider getting a job rather than working for yourself.

But surely it's good that they provide you with a safety net while you're building up your business?

Yeah, perverse incentives for sure! It means that giving up benefits is not a rational choice for vast numbers of recipients. Anyway good luck. With the business hope it picks up quickly when you get started.

Wait till you have to pay 62% in tax it feels pointless working so hard.

Pros are you don’t loose as much money if you don’t make money to start with, that safety net is a luxury many wouldn’t get. And if you are referring to UC it’s reduced by 55p for every £1, it’s not a charge

Unfortunately self employment is often the only option when you are disabled. I was forced to leave a job due to illness that left me with permanent disability as my manager said the reasonable adjustments occupational health suggested were 'ridiculous' and couldn't possibly work.

I'm now doing the same role self employed. My clients know that my health is up and down and that I need to work flexibly around this. Even thought I've now proved it can work I still can't find an employer who is willing to give me this flexibility. So I carry on with self employment with the risks and benefits that involves. Currently my self employed role makes me slightly more than benefits would (and for me it's worth it for the added benefit to my mental health). I also had a safety net as dh is in a good job but I totally understand why people without that wouldn't want to take that risk.

I think it’s the self employed part that is difficult. Could you look into regular work alongside it? At least until you can make a good, regular income, would that be an option?

Setting up a business is always risky and comes at great cost both financially and time.

The question you have to ask yourself is if you are able to earn a living in 18-24 months.

If you are deemed to have limited capability for work (LCW) or limited capability for work related activity (LCWRA) then the first £411 of any earned income is disregarded before you start to lose 55 pence for every pound earned.
With respect OP, if you have your rent paid and your council tax paid as well as receiving UC standard allowance and possibly the LCWRA health element as well then why do you consider yourself financially penalised? Surely you have a financial buffer through UC?
Also why go for self-employment instead of PAYE? There is a lot of support and advice available for new startups, hope it works out well for you.

Yabu.

You'll earn more and be happier working.

Although I dont know the details of your disability, which could change everything depending on severity of symptoms

You get a £411 work allowance meaning that figure is completely disregarded from your earnings and even above that they only reduce at 55p in the pound ! If you get LCWRA, then it's likely you'll still continue to get that as they rarely seem to re-assess people. I'm really not sure what you are complaining about?

Bump up your tax deductable business costs as high as possible. Are you making a deduction for working at home? You can deduct a % for rent/mortgage/utilities/c tax/phone/broadband etc. HMRC offer recipe calculations but if you use more than one room you may be better ff calculating the % yourself. There are articles you can google to do so. I write off 30% of my utility bill costs and pass them back to the tax man. You can also deduct for anything business related and I recommend you do so down to the last paper clip and pen. Dont forget the cost of postage/stationary/software plus transport for every visit to the post office to to buy business materials.

Wow! I will look into this

The point is UC reduces as you earn to give you a bridge back into work. You’ll be 45p better off for every £1 you earn over your work allowance. If yo don’t work you’ll only ever have what the government deems necessary. By working you’ll can add to that making life more comfortable, and when your business is earning enough your claim will come to an end naturally because you’ll be earning enough to survive without the money from UC. Or it may be that you’ll always need a top up because the business only brings in so much. It’s not a charge on your earnings, the reduction is intended to reduce your reliance on benefits - the safety net is there for the lean months while you get on your feet.

You’re not going to be paying tax initially and there are lots of ways to reduce your tax burden in a business, keeping your benefits untouched on top of that is a lot to expect.

How would you prefer it was done OP ?

Genuinely interested.

There should be a concept of 'support to try to work' where you don't lose benefits if you give working a try and it might not work out. So a 3-6 month pause in claims or something whereby you can just restart them with no penalty.

There is. It's called universal credit. Op would have to earn a significant amount to completely wipe out her claim and people generally do not lose their LCWRA element when they start work so the safety net remains.

Benefits can be frozen/removed/recalculated in ways earnings can't.

You will have a reason to get up each morning and be productive.
You will have contact with people and have something to talk about when you meet up with people.

You will be part of the world more, and you will progress.

People calculate so much just in financial terms but there are many more aspects to life than money and free dentist appointments.

Look at worth in a bigger way.

Good luck @AmieWhineHouse

I'm in my 50s and was on benefits for a bit decades ago when I split with DC's dad. At that time you weren't allowed to earn anything at all, without the full amount being deducted from your benefits! Likewise any payment from the DC's dad was also taken in full from your benefits, whereas now it's not counted. I see the current situation as a vast improvement on that.

When I was training for my career, I had 2 years where I didn't make a penny. Obviously I stuck with it as I had the bigger picture in mind but it was tough.

That said, I wish you well in your business OP.

In some cases only (effectively) getting to keep 45% of take home pay can make it not worth taking on an extra shift or two to earn more. On minimum wage the extra will be wiped out by childcare (even at 15%), travel, parking etc. Or any bonus you get will be cut right back to the point it's disheartening (we are not talking massive bonuses here in jobs that leave you on UC, maybe £25 at Christmas type stuff). Tax credits was much better for this as you could put in a bit extra and benefit from it, possibly leading to longer term prospects. UC is designed to keep you poor and in your place.

This. Plus there's a 2 year grace period from the minimum income floor, which they had to bring in because previously there were a lot of people who were self employed beauticians or online traders which meant they claimed a substantial amount of benefits to top up their 'business' which in reality was making £30/40 a week from doing their mates nails for them, or buying crap from car boot sales and selling it on ebay.

You don't pay 62% income tax on your whole income.