Universal Credits - Self Employed

Sixer

HappyMJ wrote: »

With good tax planning a SE person could contribute into a private pension minimizing a tax and national insurance liability and have half the contributions allowed as an expense for benefit purposes increasing the amount of benefit available. i.e they could* declare a very low income and claim maximum working and child tax credits, housing and council tax benefit.

*(could)---not saying that they would do it but it is available. http://www.dwp.gov.uk/publications/specialist-guides/technical-guidance/rr2-a-guide-to-housing-benefit/working-it-out/income-and-capital/

How is this different to the non-taxable pension contributions paid by an employed person (for whom the contribution often comes with extra from the employer)?

MissMoneypenny

Blue22 wrote: »

Lol I see you've been looking at my posting history. Well I guess the first thing you will have seen is that I have been consistent about wanting to support working families. No it won't effect me personally as I'm in my mid 50's and my kids are 'grown up' or as 'grown up' as they will ever get. BUT I want my children and their peers to be able to have families if that's what they want. Lots of posters on here of my generation, talk of how they brought their children up but didn't resort to benefits. Well take it from me they had it much easier then!

The first quote that you've highlighted above was from one of my recent posts, but I never attributed that quote to me. I explained in that post that I had just copied a message that I had seen on HPC. I don't know who wrote the original post but I just found it sad.

When my 'lots of children' (8 actually) were younger, no I couldn't work and wouldn't have wanted to. So I do have sympathy for SAHM's. I find it bizarre that the government pays a large contribution for childcare so that many Mothers of young children go back to work in low paid jobs. Ok it's fine if that's what the Mothers want but bloody stupid both economically and socially if the Mother would rather be at home with young children.

How do I know about the workings of tax credits and HMRC? Well as I said recently I have spent many years self employed so yes have had to understand the workings of income tax. And tax credits were around when my younger children were still dependent so again made a point of understanding them. I also spent a couple of years 'working' in a PAYE position for Welfare Rights.

So to sum up....I want to see working families supported. I think the current system is very unfair on sole income families and it does not support couples adequately, and I also feel that Mothers of pre school age children shouldn't feel pressured into returning to work when there is such a high level of unemployment and the sums just don't add up regarding childcare.

Non of my 'agenda' is motivated by personal gain, in fact I would be more than happy to pay extra tax if need be. I just want to see today's generation having the pleasure of an affordable family life like previous generations have. Don't you want the same for your children Miss Money Penny?

Tax credits are benefits too and came in about 10(?) years ago The youngest of your 8 children is 19 and you stated in that previous post that you were "unable to work" because of you OHs job. So it seems that you did resort to benefits to raise all your children as you would have just keep claiming more and more tax credits for every child you had?

I'm all for seeing working families get some help, but not those parents who can't be bothered to work many hours to fund all their children. The answer has to be to limit the number of children the state will pay for and make those type of parents do more to be responsible towards the children they produce, by making them work to support their children. UC will go towards doing this.

I agree about the affordable life for this new generation and we need to get back to that; and away from the last decade of rewarding parents who won't support their children by just giving them more welfare. It is unfair that the workers can't afford to have children, while the tax credit claimers just keep produing more and more children as they expect everyone else to pay for them.

We all want the best for our children, but that should be by teaching them to work hard at school to get what they want: not showing them how to claim more welfare for every child they have.

MissMoneypenny

dktreesea wrote: »

You could have a self employed couple, with a couple of children. They make jewellery. Both work 30+ hours a week. They sell the jewellery a couple of times a month at craft fairs. After all legitimately claimed expenses - and fully declared revenue - , they net £5k a year. I put these figures into the benefits calculator on www.turntous.org.uk, with £1500 council tax and an LHA of £183 a week. Total value of the benefits returned? £22,811. Total income after tax: £27,811.

I recalculated this taking the proposed minimum wage floor into account, based on full time hours, say around £15k each. Remember, this is notional, not real, income. Amazingly, even with this as the gross income, so a lower notional net income, of around £12,800 each, they would still get benefits, but "only" £4,652 per annum, bringing their income down to £9,652 per annum.

I am truely shocked by this. :eek::eek::eek:

MissMoneypenny

dktreesea wrote: »

I am pretty sure than many self employed people would struggle to get work in the PAYE employed sector. For a whole host of reasons:

- out of date skills,
- too old/disabled/unfit
- they don't "fit". People aren't likely to employ a 50 year old man to sell women's lingerie on the high street
- the employer doesn't believe they will be able to work under the thumb of a boss after being their own boss for so long
- there are better applicants to choose from (definitely likely to be the case in the current employment market).

At least they will go on the work programmes and pay society back for their welfare payments; instead of just getting 23K welfare (in your example) a year and doing nothing for it.

Pedent

HappyMJ wrote: »

With good tax planning a SE person could contribute into a private pension minimizing a tax and national insurance liability and have half the contributions allowed as an expense for benefit purposes increasing the amount of benefit available. i.e they could* declare a very low income and claim maximum working and child tax credits, housing and council tax benefit.

*(could)---not saying that they would do it but it is available. http://www.dwp.gov.uk/publications/specialist-guides/technical-guidance/rr2-a-guide-to-housing-benefit/working-it-out/income-and-capital/

This is an incentive to encourage saving into pensions (and for tax credits purposes, the full amount contributed can be deducted from your declared income, not half). Exactly the same incentive is available to both employed and self-employed claimants.

Blue22

MissMoneypenny wrote: »

Tax credits are benefits too and came in about 10(?) years ago The youngest of your 8 children is 19 and you stated in that previous post that you were "unable to work" because of you OHs job. So it seems that you did resort to benefits to raise all your children as you would have just keep claiming more and more tax credits for every child you had?

No I didn't claim more tax credits for additional children as they were all born a long time before tax credits were introduced. In fact 4 or 5 of them were non dependents by then.

But Ok we did resort to 'benefits' to help provide for them in the form of Child Benefit, which was always universal, and the additional married mans tax allowance. The same two benefits that I pointed out that you must have claimed for your children. Incidentally the married mans tax allowance was withdrawn in about 2000 and superseded by a flat rate payment of about £500/year through WFTC.

Those two 'benefits did not cover the cost of additional children but helped towards them.

MissMoneypenny wrote: »

I'm all for seeing working families get some help, but not those parents who can't be bothered to work many hours to fund all their children.

I think that's what annoys me about the system we have now, how little difference it makes whether you work or not. Those that do bother to work and work hard, find they are no better off than another family that do the minimum. This is not something that will change under UC.

Yes as my Husband and I had additional children he worked more hours, probably working 90 hours or more a week to provide for them. But I can't see what incentive another family in our position would have to do the same now.

By earning more they would see their tax go up and their TC or UC go down leaving them with only 24p for each £1 they earned

They have no additional married mans allowance like we had.

The point at which tax is paid at a higher rate has been lowered

And Child Benefit will start to be withdrawn once someone in the household earns £50K

So for a family the size that I had, my calculations say that it would not make any difference whether they earned £8K/year or £78K/year, both would end up with the same income, around 52K/year.

I know my family size was extreme but the above can't be right can it?

MissMoneypenny

Blue22 wrote: »

But Ok we did resort to 'benefits' to help provide for them in the form of Child Benefit, which was always universal, and the additional married mans tax allowance.

Plus the tax credits you claimed which would have come in while your your youngest was about age 6/7? As only your OH was working to support the 10 of you, didn't you find yourself a lot better off when you claimed tax credits and lost the married mans allowance? Plus you didn't have even have to work too to help support your children when tax credits came in as the extra money was just given to you.

When the married mans allowance was in, if you had wanted more money you would have had to work too; as many mothers did then, by working evenings and weekends. Married mans allowance was a reduction in taxes for those that were working, not free money for those that didn't work.

Then when tax credits came in, you got extra money given to you from the state for every child you had and then more money given to you if the parents didn't want to work enough hours or didn't work at all to pay for their children. Under tax credits: the parents don't have to support their children as the state gives them more for every chilld they have, plus the less the parents work, the more money the state gives them to pay for those children. That's why Blair called tax credits "a vote winner".

Do you really think it is right that that woman you were sad for; the one who was working and was saving up to have a child; should continue to pay for the parents who don't work enough hours to support all their children and just expect others to pay for them, while she is unable to afford to have a child of her own? This is what happens under tax credits and why they have to end and why parents will now have to go on work programmes if they don't work enough hours. It's also why a limit needs put on the number of children the state will pay for and hopefully, the parents will be given a card with welfare money on, instead of just being given cash. It's never a good idea to reward bad behaviour.

dktreesea

Sixer wrote: »

This is precisely what I mean by posters conflating business expenses (in this case the payroll tax of employers NI) and earnings. This is genuine business expense involved in employing someone, which reduces the profit of a business. The profit of a self-employed person's business is their income, which equates to the gross pay of an employed person.

You can't use this to suggest self-employed people pay less tax on their money than employed people do. It's two completely different things.

Yes, there are very minor differences in NI contributions between the classes. But income tax is EXACTLY THE SAME for an employed and self-employed person, once business expenses are removed. It's just that employed people have few, if any, business expenses. When they do have them - laundering their uniforms, use of home as office - each type of earner is treated EXACTLY THE SAME. See Princessdon's OH and myself for use of home as office, for example. Yet Princessdon labours under the completely false impression a self-employed person would get a bigger tax allowance for exactly the same expense as an employed one.

To think that the SE person is in the same position as the employee when it comes to declaring taxable income, imho, is completely naive.

The SE person and employed person, both faced with net incomes before tax of £40k per annum, don't have the same ability to legitimately reduce that income.

The employed person, say with 2 children and a SAHM wife, pays his taxes on the full £40k , gets no benefits because he isn't entitled to any, and lives off the net after tax.

The SE person, not wanting to pay tax on £40k, arranges his affairs so he doesn't have to. He invests an extra £25k in stock, fully expensed under UK tax laws, i.e. the accounting principle of matching which applies in other countries (stock is a balance sheet/capital item. You only get to expense the stock when you sell it) doesn't apply here. He sells his privately owned vehicle (no income tax implications), and takes out a business lease on a new vehicle, fully claimable for tax purposes. £5k per annum.

I'm not sure whether he could work his pension payments to reduce his taxable income or if this would count for benefits calculation purposes, but even so, he has now reduced his taxable income down to £10k for the year.

Furthermore, as a result of doing this, he becomes eligible for all kinds of benefits/subsidies from other taxpayers, worth from £8k to around £18k for his family circumstances, depending on where he lives and whether he owns his house (source: www.turntous.org.uk)

Isn't it worth it, spending £30k for a "rebate" of £8k to £18k, monies that will never have to be declared as income at somepoint in the future?

And surely you could do that indefinitely?

Blue22

MissMoneypenny wrote: »

didn't you find yourself a lot better off when you claimed tax credits and lost the married mans allowance?

For us no, we were worse off. When the married mans allowance was a tax allowance it reduced my husbands tax bill by about £600/year. When it became a 'credit' under WFTC it was capped at the lowest tax rate, which at the time was only 10%, and became a credit of about £250/year.

We did not get anything else in tax credits or child credits, our income was too high. (btw I did not spend 30 years not working, just short periods whilst some of the children were pre school age) I think you are being taken in by the misguided belief that everyone with children can claim £1000s in tax credits. Some families with low incomes or who work few hours can, those who work long hours or have higher incomes are often entitled to very little or nothing at all.

MissMoneypenny wrote: »

Do you really think it is right that that woman you were sad for; the one who was working and was saving up to have a child; should continue to pay for the parents who don't work enough hours to support all their children and just expect others to pay for them, while she is unable to afford to have a child of her own?

No and that's why I have never supported tax credits and don't think UC will change anything. That's also why I would want to redirect funding so those on medium incomes and above could afford to have families too. i.e I would give them 'benefits' like the ones both you are I had in the last century.

MissMoneypenny

Blue22 wrote: »

That's also why I would want to redirect funding so those on medium incomes and above could afford to have families too. i.e I would give them 'benefits' like the ones both you are I had in the last century.

There is no "funding" unfortunately as the last government borrowed to pay for all those generous welfare payments (vote winners) they brought in; plus they didn't save all the oil revenues when it was at the peak and sold all our gold reserves. All we have left is debts; 1 trillion of it, which needs to be paid. We need to make these cuts to keep our AAA rating, because if the UK are downgraded we will have to pay a higher interest rate on those debts and the cuts will have to be deeper or we will end up as bad as Spain and Greece have become.

It would be good if we got back to just gave a basic tax reduction to parents (nothing extra for every child they have); perhaps only for those parents who work a minimum of at least 40 hours a week (that's one parent, not just 40 hours between them). Then if they want more money, the other parent could do a few hours too; just as we use to do. With nothing extra for those parents who didn't work that full week, except free school meals given to their children and income support (for those that don't work at all) and help with rent. With no welfare (tax credit and rent) top ups for those that don't have children. But can you imagine the screams from those who have been use to getting others to keep them over the last decade if we went back to that too quickly?

I'm sure if these people weren't given such generous amounts of free cash, then they might then work enough hours to keep themselves/the children they produce. I do agree with getting people to pay society back for their welfare payments, by carrying out set tasks that benefits their local area.