Cuts to tax credits for self employed people

[Takver]

Sorry, this is going to be a bit long, but I think it is something that people might want to be aware of / maybe consider writing to their MPs about if they are concerned.

This is buried right at the end of Annex 3 in the Dept for Work & Pensions White Paper 'Universal Credit: Welfare that Works':

'Some self-employed people under Tax Credits report very low levels of income. We know that in starting up a business that it can take some time before it becomes profitable. But once established we would expect to see a reasonable income from the business activity. So for Universal Credit we are considering introducing a floor of assumed income from self-employment for those registering as such. The floor will be set at the National Minimum wage for the reported hours; clearly profits above this limit may be received and reported. For those self-employed people who engage in only a few hours of activity, and do no other form of paid employment then we will expect them to engage with the conditionality requirements as set out in Chapter 4. '

My reading of this is that even though they are aware of the fact that people starting up in self employment are highly unlikely to earn the minimum wage in the early years, you are only going to be 'counted' as doing the number of hours as if you were earning min. wage.

So if you were working 40 hours p/w, but only earning £80 p/w, they would count that as earning £80/£5.93 =
13.5 hours per week, and you would be expected to 'engage with the conditionality requirements' - ie look for other work.

Now, IME, the Tax Credits system have helped a lot of people (including us) get past that sticking point with small businesses where you really need to work at it full time, BUT you aren't bringing in enough money to make ends meet. It seems to me a very backwards step to cut out that support, at a time when there are very few alternative jobs for people to move into.

Yes, fair play to have some time limit - say, for example, that you give people 3 years self employment with Univ. credit support - and if they aren't earning min. wage by then, expect them to look for other work.

But I think on the current proposals a lot of people will lose out, as will the Treasury, since once established small businesses can then go on to provide good solid employment for others as well as those who start them up. For sure, our business has many times repaid the two years tax credits we received just in terms of employers NI, even leaving aside our personal tax payments.

Credit goes to Schnews for spotting this change, btw - I had to read the white paper twice before I found it, even knowing that it was there somewhere. (Not the most entertaining of ways to spend an evening . . .)

Its not the worse clause I have seen in a review. Lots of SE expense to the max to avoid paying tax but then still expect tax credits to pay. There will also be those that dont work anywhere near the hours required but see that registering as SE and claiming tax credits nets more than JSA.

Going SE is a risk, one that people need to take into account before embarking down this route. You need to be able to cover periods of no work and start up costs so prudent saving before hand is needed or a backup income in the household.

Fuck. This will affect us massively. Looks like I'll have to go out to work then. :(

Thing is though HapppyMummyy is that the Tories are very much of the "well if you can't find work - start your own business" type - and supposedly want to encourage entrepreneurship.

I had thought of going SE with a business venture - however having read that - I'm not going to take the added risk and will scrap that potential work option.

Maybe it depends on where you live. As far as I can see, what is likely to happen here is that people will be pressured to give up self employment before they've had a chance to make it work, and instead will move into minimum wage work, which will then end up being topped up by credits long term.

Seeing moving into SE as a risk taken with savings in the bank is fine if you're thinking middle class office job. The people I know who would have been affected are more likely to be going self employed in the tourist industry or as gardeners/ labourers/ builders etc - where of course you need time to build up clients & a reputation.

TheVisitor - I think it is something where its definitely worth writing to MPs/putting the word out. Much as I dislike the Conservatives, they are in theory (and to be fair sometimes also in practice) supportive of small businesses, so it might be possible to change their minds . . .

Schnews and Takver, thank you so much for reporting this.

It will hit me and DH, as our income fluctuates massively (we're both SE). I've never claimed tax credits before, as I thought we could manage without them (I didn't want to take things out of the pot, as it were if we could do without it and it would also be an administrative hassle to keep them updated as things fluctuate- I just don't think systems like this are set up for freelancers...) - but having just totted up my tax return, things look pretty different.

Gah!

And of course, if you have to look for other work, how are you expected to chase your own contacts and push your business forward?

Right, workhouse for me it is then. I may even have to consider becoming 'a scrubber'

PS Baroque, if you are considering going SE, have you spoken to your local Business Link? They are a real, practical help. I'd speak to them before you ditch your idea - as HappyMummy says, it is a risk but BL should be able to give you a good sense of how much of a risk it is, IYSWIM.

Dear god.. maybe I'll have to rethink self employment as a means of working around disability then :( Fucks sake :(

madam - going SE with my idea would already be a huge risk, little capital/savings. There's no way I could take on any more risk.

'twas only a thought I'd had anyhow (well several weeks/months of thoughts) have several thoughts in my head and not sure which one to follow yet so actually it's good to be able to rule one out iyswim?

Oh good grief. The impression this gives me is that unless you already make x amount of money, you will not be allowed to try and make any more unless you work for SOMEONE ELSE who then controls either directly or due to government policy / bureacracy and ultimately is more likely to benefit from it.

This has been designed I suppose to stop people actually making more money than they declare in order to get more money out of the system than they are "entitled" to (God I'm beginning to loathe that word) but as you correctly identify, a big problem will occur when it actually nips the entrepreneurial venture in the bud.

It's rank hypocrisy again - only if you have money can you make money, and you must take cintro of you own destiny but we will of course make it so difficult that you will believe it's impossible and we will preserve the status quo of having not quite enough for ones needs OR having so much we don't know what to really do with it, except count it, move it around and pretend people doing those jobs are more important than anyone else!!!!!

GAHHHHH.

It's all do as I say, not as I do from government. Anarchy has never looked so damn appealing!

"Controls either directly or indirectly" I mean.

Sorry, typing with my gut instinct. Must remember that brain and fingers give better results!

We never had them, tax credits. They are a relatively recent thing that perhaps we can't afford. I've never had them.

Xenia - I don't think you've ever really needed them have you

"So if you were working 40 hours p/w, but only earning £80 p/w, they would count that as earning £80/£5.93 =
13.5 hours per week, and you would be expected to 'engage with the conditionality requirements' - ie look for other work. "

I don't read it like that. I read it as this:

If you were working 40 hours p/w, but only earning £80 p/w....

...that would count as earning a notional amount of 40 x £5.93 = £237.20

Which means that your 'universal credit' would be based on a wage of £237.90, not £80.

So (if we imagine the rates similar to current tax credits) you would lose out on

(237.90-80)x 0.39 = £61.58 of Tax credits payments each week.

But as always, there will be loopholes.

If you work a 40 hour week and earn £80, then you would be better off declaring a 24 hour week (if 24 hours remains the threshold for enumerative work), so that your notional wage is only £142.32, meaning that you only miss out on

(142.32-80) x 0.39 = £24.30 per week.

Even if they have an 'incentive payment' such as the 30 hour element, it still won't be as much as the £36 per week loss you would get for declaring the extra 16 hours.

Interesting, Lougle, maybe you're right and I am misreading it. That would suggest that the motive is as ToxicKitten suggests - to identify people who are under-reporting their income. (I would have thought though that they would be picked up by tax inspection though as they'll be filling in a tax return.)

I had interpreted it as being designed to pick up people who potentially could sign up as self employed, only have a few paid hours a week, but claim to be looking for clients / doing paperwork / developing the business for many more hours. The problem with the latter situation, of course, is that in the early days of a business you really do spend hours hunting clients / developing the business, etc etc.

I've written to my MP on this one (his/our constituency has one of the highest rates of self employment in Britain) and will be interested to see his answer.

A bit of both, I think Takver.

If you genuinely spend 40 hours working at your business, then you have to accept that you will take the financial hit of the 'notional income'.

If you only work 8 or 10 hours per week as self-employed, then you have to accept that you need to find additional work.

We only need tax credits as employers do not pay their employees a living wage. Imo, ALL employers are subsidised by the state. The self employed use all manner of excuses to avoid paying their due tax. Ffs, I was listening to one guy boasting that he could 'offset' his razor blades against his tax return - wtf! I have to wash my hair to go to work, I can't claim back the cost of the shampoo.
A friend of mine (self-employed) was complaining that she would no longer be eligible for CB when high income households lose it. She complained that her income was just under the limit for dual lower tax payers. Yes, that may be true, but she offsets lots of her purchases (think projectors, cars, petrol etc) against her taxes and they are for personal use.
Far too many opportunities for tax avoidance for the self employed including cash in hand jobbies.
To think that this government is now diluting the rights of the employees of these people to seek redress through tribunal turns my stomach.