Universal credit rules for self-employed under fire

The pilot of the new universal credit system should be revised and reintroduced because the existing one fails to take adequate account of the impact on self-employed people, such as freelancers.

Sounding this call to ministers, a tax campaigner said the existing rules around universal credit seemed “designed to place obstacles in the path” of people whose earnings are from self-employment.

Specifically, the self-employed face unnecessary bureaucratic burdens in having to prepare monthly accounts for the DWP and annual accounts, on an entirely different basis, for HMRC,” explained the Low Incomes Tax Reform Group.

“Additionally the self-employed face the disregard of trading losses under the DWP basis of accounting, so that if a claimant’s expenses exceed his/her receipts in any month, he/she cannot set the difference against a profit for the next or any subsequent month. “

A third issue unfair to the self-employed, the charity added, is the minimum income floor, which for universal credit purposes substitutes a deemed amount of profit in any month in which the actual profit is lower.

“Overall, under universal credit a self-employed claimant can be worse off than an employed claimant doing a similar job and earning the same amount of money,” said LITRG’s technical director Robin Williamson.

“It is particularly important that the experience of the self-employed claimant is tested sufficiently robustly to find out whether universal credit can indeed act as a work incentive for claimants choosing that route.

“In their present form, the universal credit rules for the self-employed seem to us to be strong on bureaucratic burdens and red tape, weak on work incentives and growth.”

He added that the rules should reflect a better understanding of how small businesses actually operate, and “that will only come from pilots which test how people choosing self-employment respond to the requirements.”

 

17th November 2013

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