MSE News: Benefits shake-up to introduce Universal Credits

bayness0

The problem is very simple "the current system does not really help the unemployed get back into work". Once you have been unemployed for a short while the money you can earn goes down very rapidly as employers see your need/desire to get back to work as an excuse to lower wages. Then we end up with a situation where the work you do does not provide a viable increase in living standards.

As an example I am currently out of work and I needed to re-assess the salary I was willing to work for (once upon a time I was earning a very high salary but a major illness put paid to that - I was paying well over £1,000 per month in tax).

I worked with my benefits advisor to calculate the benefit to my family of working in a 12k a year job. The overall benefit to my family of me taking a 12k a year job = £43.10 per week or £1.07 per hour worked. This is before any of the expense involved in working - bus fares, food etc. Assuming a 5 day week and needing a bus to get to and from work, that goes down to £25.10 per week, or 62.75 pence per hour.

The problem is all caused by housing Benefit. It is the strangest of all the benefits. The claw back rate by the Councils (some may be different but I have not found an example) is 85% (65% housing benefit and 20% council tax) - therefore for every £1 I am able to earn (after tax) the Council claw back 85 pence from the housing benefits received. Whilst I understand the need to get this money back, an 85% claw back rate makes any job that does not pay enough to get one out of the need for housing benefit impracticable.

I have not seen the new proposals yet but it will be interesting to see how these change the picture.

The easiest way to change the whole thing - in my opinion - is to actually allow people to earn enough to live (Rent + basic cost of living) before charging them any tax. Then charging a reasonable tax after expenses for living It would be a much simpler and fairer system. We could reduce the tax collection bill by masses using this type of system - rather than taking and giving back (such a stupid system, and whoever thought of it should be...).

Ok, my rant is over for the pre changes system.

ska_lover

DaisyFlower wrote: »

Graham29 wrote: »

If we didnt have the benefit dependant culture we have where people can choose not to work children would not grow up to believe that having a child very early is the way of life. Stop the benefits for simply having a child and it will benefit the country in many ways, our teen pregnancy rate would drop, children would be no be born into casual relationships and growing up in a working household will install a work ethic into future generations. Stats show that most children raised on benefits go onto claim themselves, schools educate them but they see their parent/s not working and getting money and the latest gadgets etc so thay have no incentive to work.

Also, I think the new rule re S/E is great. So many get away with declaring small profits or dont actually work the hours needed for tax credits etc that it will stop a lot of that. If working S/E doesnt cover the bills then why should othe tax payers subsidise that?

A universal credit should mean a far fairer system. Some mums get 9 months maternity leave paid whereas those on benefits get to stay home for years with other working mums taxes paying for them. NRP's will be treated the same as PWC, both will be expected to work to support the child rather than just one.

Any change that stops people choosing not to work has got to be good.

I totally agree.

merlin1

covlass wrote: »

My husband is self employed every thing looks good on paper, but in reality is different. Being a Sole trader Tax credits are worked out on the years profit which is more than his wages. Yes we get tax credits but only because we have a disabled daughter. I do not work I worked from the day I left school until the day my children were born, never claimed benefits, my husband has worked hard over the years building up his business with no help because he is old school and believes he should provide for his family. Are we rich? I wish !!!

I get CA but much prefer it if I could go to work

i'd like to pick up on this point as it is one which stood out for me -

"Being a Sole trader Tax credits are worked out on the years profit which is more than his wages."


your husband doesnt/shouldnt have 'wages'. what he has are drawings from the business - available when/if there is enough profit to allow him to after the business expenses have been accounted for. if for example he draws £100 pounds out of £200 profit, thats neither here nor there, the profit is still £200 and thats what they'll look at and tax him on too!

it took me a while to get my head around while running my own business, but the easiest way to look at it is if there's profit left at the end of the week be it £5 or £5000 after all allowable expenses have been accounted for then that is what your husband has earned whether he draws it all or not! taking a lesser drawing makes no difference to tax or tax credits. they look at total profit not what you draw for yourself.

be very carefull when he fills in his tax return as it is very easy to underpay tax if you just declare your drawings and leave the profit out they really are one and the same

back to the op, i think this will weed out the genuine sustainable business from the not so, but i also think there ought to be a years 'grace'. no-one will earn £12330 in their first year of starting a business unless it really is something unique! you have to carry the business for the first year. to assume that a 12 grand income is achievable in the first year is daft. i fear this may see the end of small business startups

Nickynoo1

why do people always include food as an expense when working? Do you not eat when you don't work?

covlass

merlin1 wrote: »

i'd like to pick up on this point as it is one which stood out for me -

"Being a Sole trader Tax credits are worked out on the years profit which is more than his wages."


your husband doesnt/shouldnt have 'wages'. what he has are drawings from the business - available when/if there is enough profit to allow him to after the business expenses have been accounted for. if for example he draws £100 pounds out of £200 profit, thats neither here nor there, the profit is still £200 and thats what they'll look at and tax him on too!

it took me a while to get my head around while running my own business, but the easiest way to look at it is if there's profit left at the end of the week be it £5 or £5000 after all allowable expenses have been accounted for then that is what your husband has earned whether he draws it all or not! taking a lesser drawing makes no difference to tax or tax credits. they look at total profit not what you draw for yourself.

be very carefull when he fills in his tax return as it is very easy to underpay tax if you just declare your drawings and leave the profit out they really are one and the same

back to the op, i think this will weed out the genuine sustainable business from the not so, but i also think there ought to be a years 'grace'. no-one will earn £12330 in their first year of starting a business unless it really is something unique! you have to carry the business for the first year. to assume that a 12 grand income is achievable in the first year is daft. i fear this may see the end of small business startups

I stand corrected Drawings not wages. As much as we would love to Draw out what profit is left sadly this has to be kept to ensure the upfront tax bill is paid in July ! VAT bill paid, rent, insurance NI, and all the other bills On paper every thing is good and profitable but what cripples us that the Tax & vat man do not care as to how long we have to wait for our customers to pay us they want their cut and they want it on time or we are penalized.

merlin1

covlass wrote: »

I stand corrected Drawings not wages. As much as we would love to Draw out what profit is left sadly this has to be kept to ensure the upfront tax bill is paid in July ! VAT bill paid, rent, insurance NI, and all the other bills On paper every thing is good and profitable but what cripples us that the Tax & vat man do not care as to how long we have to wait for our customers to pay us they want their cut and they want it on time or we are penalized.

ah, that makes more sense covlass! your original post wasn't quite as clear so appologies from me for the grannies and eggs post! :)

Sixer

covlass wrote: »

I stand corrected Drawings not wages. As much as we would love to Draw out what profit is left sadly this has to be kept to ensure the upfront tax bill is paid in July ! VAT bill paid, rent, insurance NI, and all the other bills On paper every thing is good and profitable but what cripples us that the Tax & vat man do not care as to how long we have to wait for our customers to pay us they want their cut and they want it on time or we are penalized.

Even so, Covlass - this is a finance/capital/cashflow issue. It's not an entitlement to benefit issue.

I am not unsympathetic to small businesses - I am both self-employed and a partner in a small business myself - and I know that cash flow and finance can be big issues to all of us out there.

BUT - this is not a benefits issue. This is an available capital issue, a cash flow issue, a compliance issue, a regulations issue. It is all these things and government - hello Vince, how's it going at the Business Department these days? - should be getting onto them.

Even so - people should NOT be looking to tax credits to support or underwrite their business ventures. They should either be borrowing the money they need or they should be working in employment to finance their venture. I chose to work part-time to finance my ventures rather than borrowing - at a hideous NMW job, too. I didn't expect tax credits to finance the three years I spent working 20 hours a week for under £1k a year a profit while I was building them up.

merlin1

Sixer wrote: »

Even so, Covlass - this is a finance/capital/cashflow issue. It's not an entitlement to benefit issue.

I am not unsympathetic to small businesses - I am both self-employed and a partner in a small business myself - and I know that cash flow and finance can be big issues to all of us out there.

BUT - this is not a benefits issue. This is an available capital issue, a cash flow issue, a compliance issue, a regulations issue. It is all these things and government - hello Vince, how's it going at the Business Department these days? - should be getting onto them.

Even so - people should NOT be looking to tax credits to support or underwrite their business ventures. They should either be borrowing the money they need or they should be working in employment to finance their venture. I chose to work part-time to finance my ventures rather than borrowing - at a hideous NMW job, too. I didn't expect tax credits to finance the three years I spent working 20 hours a week for under £1k a year a profit while I was building them up.

after 2 years in full time time employment and building a small client base around that i am now ready to drop my hours to 20 to "compliment and carry" the minimal income from self employment. i am leaving a career to go NMW, but the time saved and put into the business hopefully will be worth it long term!

*edited because the post was reading much like the meerkats with too many 's' s ...

covlass

Sixer wrote: »

Even so, Covlass - this is a finance/capital/cashflow issue. It's not an entitlement to benefit issue.

I am not unsympathetic to small businesses - I am both self-employed and a partner in a small business myself - and I know that cash flow and finance can be big issues to all of us out there.

BUT - this is not a benefits issue. This is an available capital issue, a cash flow issue, a compliance issue, a regulations issue. It is all these things and government - hello Vince, how's it going at the Business Department these days? - should be getting onto them.

Even so - people should NOT be looking to tax credits to support or underwrite their business ventures. They should either be borrowing the money they need or they should be working in employment to finance their venture. I chose to work part-time to finance my ventures rather than borrowing - at a hideous NMW job, too. I didn't expect tax credits to finance the three years I spent working 20 hours a week for under £1k a year a profit while I was building them up.

Please do not get me wrong I amnot saying that we should to entilted to it, quite the opposite, what I was trying to say is that we work hard pay our tax's so on keep other sin employment yet do not really benefit ( apart from keeping out pride) yet others seem to be able to take and take some more then do not like it when there is a possibility it may be taken away. Not very good at explaining things am I lol

Sixer

covlass wrote: »

Please do not get me wrong I amnot saying that we should to entilted to it, quite the opposite, what I was trying to say is that we work hard pay our tax's so on keep other sin employment yet do not really benefit ( apart from keeping out pride) yet others seem to be able to take and take some more then do not like it when there is a possibility it may be taken away. Not very good at explaining things am I lol

We are probably saying the same thing!