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 risky for nearly everyone. Many small businesses fail. Thd statistics are frightening. The system is mad.

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.

conversely, every £1 you earn, you will get £1.45 - until you earn over the limit

Being self employed is risky. I don’t earn a lot of money, but I prefer self employed as it fits better with my lifestyle and I can work it around my illnesses. I don’t claim any benefits.
Unfortunately, despite earning lower than minimum wage, I can’t claim anything as I have to live with family due to my conditions as there is a safety element (I have narcolepsy and can’t be left alone incase I fall asleep in the bath or leave the cooker on) but because I live with family I’m not entitled to any help.

No one told me that Are you sure it’s true?

I’ve claimed UC for 5 years and had a promotion in that time and I’m significantly better off with working more hours and on the higher salary. It is definitely worth working

YANBU. This is a very common scenario and it's not just self employment. It's the same with lots of jobs where you may suffer variable hours (i.e. unpredictable shift work) or there's a risk of the job not working out and you having to leave or be let go. I see and hear it lots of times. It's insane that there is no "smooth" way to get off benefits and into work (whether employed or self employed) and it's a real disincentive to take a risk, even if that "risk" is employment as lots of jobs don't work out in the early weeks and months for various reasons.

It IS mad because the system doesn't help. Self employment can work very well for the disabled due to the flexibility, not having to have the daily "grind" of a daily commute/workplace stresses etc. If anything, the govt should be bending over backwards to help people become self employed. But obstacles are put in the way, such as benefit claw backs and time delays for re-starting claims etc. I've got a number of disabled clients who are self employed and/or running their own businesses who would really struggle in a "normal" workplace, even with adaptations, etc., yet are thriving being their own bosses.

It's just a different way of looking at it. ie you could see it as you keep all your money that you earn, but you will be paying some towards your rent yourself rather than having it all paid for you. (As opposed to seeing it as a 'charge'.)

Of course it's true. You get the residual 45 p after the 55 deduction, plus the £1 you got by working. I don't know if UC counts towards your taxable income, but you can have over £1k pm coming in before you start paying tax, so you won't even pay tax unless your business starts taking off and even if your income increases to the equivalent of full time NMW, you still keep 80/90% of your income so way better off than benefits.

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

Unless you meant something else?

So basically what you want is benefits not to be means tested and not affected by earning

No, what is needed is a more flexible transition, whereby the claimant is given a reasonable amount of time for the new job/self employment to become longer term and to ascertain the new regular/average earnings levels.

At least with Gordon Brown's tax credits, the tax credits were based on full tax years with thresholds built in for varying levels of income, so the withdrawal of tax credits based on earnings was a lot smoother and over a longer time period.

Given that a vanishingly small number of new businesses make decent money in the first few months, if not for the first year or two, due to marketing taking time to turn into customers, upfront costs, etc., there should be a transitional period of at least six months, preferably a year, where benefits aren't affected at all, so the claimant can concentrate on growing their business/self employment and not having to make poor decisions based on desperation when their benefits stop at a time before the business starts to generate enough cash to replace the lost benefits.

Same can apply to new jobs/employment too. Lots of people start a new job with the promise of regular shifts, etc., but find unsuitable shift patterns, redundancy, zero-hours contracts meaning no shifts, or just where their face doesn't fit, and they're left waiting with no income after they have to re-apply for benefits and have waiting time before they start again.

It's what you said.
At the moment: one pound in benefits.
Working: Earn one pound and still get 45 pence in benefits.

You can earn about £100 a week, then the tapering off starts so that you’re not getting full benefits AND your own earnings. It does make sense, even though it’s confusing.

Only if the claimant is entitled to a work allowance? If not then the wage deduction calculation is
wages x 0.55

OP is disabled so she’ll have one. £411 with housing help or £684 if she doesn’t get any.

Tax credits was based on estimates though which caused a lot of overpayments once you gave your correct income for the tax year. If you are newly self employed on UC you are also given a start up period.

Only if the op has limited capability awarded. If she doesn’t have children or LCWRA or LCW no work allowance

She says in her post she has a work allowance.

Ok I just wanted to point out that not everyone is entitled a work allowance. Nor does being disabled entitled to one either

First off, disability has nothing to do with this.

Secondly, you are not being “charged 55”, you are having benefits reduced. Massive difference. And you only lose 55p in the £ based upon your net profit (after taxation), not on your gross income.

Another problem is that benefits are too generous for many people imho. - if benefits were not so high they would only have to deduct say 20p in the pound.

Thats only for a narrow band of income, around 110k to 125k and only applies if you have nursery aged children.

The 55% tax rate for people trying to escape UC is crazy, encouraging people to stay on benefits and is from £1... not £100k !!

It's not 55% tax. It's a reduction in benefits.

Call it what you may, its still 55% of the amount you have earnt deducted from your UC and discourages people from taking v short term work.

Which could lead to more permanent employment.

My DS gets UC with LCWRA and PIP. He gets the £411 work allowance and makes sure he stays under that so he doesn't get deductions from his UC. He makes extra payments into his pension if necessary as that is fully disregarded and isn't counted as savings, and you can pay as much as 100% of your wage into a pension. He is employed under PAYE though.