Universal Credits - Self Employed

[Deleted User]

Icequeen99 wrote: »

They haven't said what the list of changes will be that trigger migration. But even if you wait until the end of the year to tell them, you still are reporting a change that will then trigger migration and lose your TP. It is just you will move later than you would have done.

And most changes you can't wait until the end of the year. You only have 1 month, so far HMRC haven't used penalties but they have the power to do so if you don't report so it wouldn't just be repaying the money you could be hit with a penalty.

The only option would be to not report the change at all (which you could with positive changes e.g. birth of a child) and then wait to be manage migrated but you would miss out on the second child's money and then probably immediately lose TP.

I can't see a way around it so far. Other than to not have any changes!

IQ

Thank you IQ, So....

Does this mean that if I am still claiming "tax credits", I can still use all of the old rules...

And when I am moved, can they backdate the UC to cover the period for that year, and then ask for the difference back if there is one?

So what is a change now, so does no changes mean, I just put down the same figures as last year when I renew "exactly" and then there are no changes, if I declare jut £1 more either way is this a change?

Sorry if I seem stupid.

Icequeen99

assj wrote: »

Thank you IQ, So....

Does this mean that if I am still claiming "tax credits", I can still use all of the old rules...

And when I am moved, can they backdate the UC to cover the period for that year, and then ask for the difference back if there is one?

So what is a change now, so does no changes mean, I just put down the same figures as last year when I renew "exactly" and then there are no changes, if I declare jut £1 more either way is this a change?

Sorry if I seem stupid.

At what every date you move tax credits will stop. UC will go from that point forward. There is no backdating of UC needed because you have tax credits up to the point you move. UC is assessed monthly not annually like tax credits.

Until you move, you use exactly the same tax credit rules to calculate income etc, the exception will probably be for the year that you move. But we don't know what the rules will be for tax credits during the year of transition to UC.

On the issue of income, i wouldn't have thought change in income would be a change that triggers migration, but until the departments share the list who knows.

I wouldn't think too much about it as so much is unknown at this stage.

IQ

dktreesea

Sixer wrote: »

Self-employment is going to be a nightmare for UC. Largely due to reporting periods - to blend in with this (ludicrous) real-time system in which every employer in the country is apparently going to be reporting wages paid on time. Since income and expenses for the self-employed won't be even for monthly periods, claimants will be seriously disadvantaged. Read the research document at:

http://www.litrg.org.uk/Resources/LITRG/Documents/2012/08/SSAC_-_universal_credit_and_related_regulations_0712_%28final%29.docx.pdf

I'm self-employed. Thankfully, my household has too high an income for any welfare payment, but I can see how it would be impossible for me to accurately report smoothed income and expenses on a monthly basis. I'd go from four figure profits in some months to high three figure losses in others. But the losses wouldn't mitigate the profits under UC.

I suppose the thinking goes something along the lines of if you earn enough last month to cover your rent, then (keeping in mind payments are in arrears) you don't need any help from other taxpayers, but if you have a month you don't earn enough to cover your outgoings you can get a top up.

I think they haven't thought it through properly. Especially for self employed people who sell products rather than services. Usually you wouldn't expense things like stock, for accounting/tax purposes, until you sell the item. The purchase itself isn't usually expensed. Things like housing benefit are then based on the previous full year's profit/loss. But under UC, with their focus on cash flow rather than profit, stock purchases all go on the minus side. What's to stop people with "too much" profit from going out and topping up/improving their stock sufficiently to bring their profits down to whatever level they are aiming at to preserve their UC? Or, if they have a shop which trades well at Christmas, paying the rent on the 27th of December instead of sometime in January to bring down their profits for their busiest part of the year?

dktreesea

FBaby wrote: »

yellowlego, you are the exact reason why this changes needed to come into place. You have received money from benefits which has allowed you to make investments and build savings. There is something morally very wrong about this. You defend it by saying you live frugally, but that is a choice you've made. Many families live frugally because they have no other choice to do so.

You didn't do anything illegally, just used the system to your advantage. According to you, you must have been able to put a serious amount of money to be able to save for a deposit AND still have £16K left unless I misunderstood and didn't come from every day savings. Thankfully, this misuse of benefits payments is about to finally stop and it is seriously about time.

I don't see how saving whilst receiving benefits is a misuse of the benefits system. Surely everyone should try to live within their means and set aside a little bit for a rainy day, no matter what the source of their income?

Plus, anyone who is self employed and receiving benefits is acting in exactly the way you describe. The subsidy people receive allows them to increase the investment in, and build, their businesses. An investment, I would like to point out, that is not counted as part of the £16k liquid assets cap. And this action is heavily encouraged by the government - and was also encouraged by the Labour government in its day.

How do you see moving from the current system to UC as changing that reality?

Sixer

dktreesea wrote: »

I suppose the thinking goes something along the lines of if you earn enough last month to cover your rent, then (keeping in mind payments are in arrears) you don't need any help from other taxpayers, but if you have a month you don't earn enough to cover your outgoings you can get a top up.

I think they haven't thought it through properly. Especially for self employed people who sell products rather than services. Usually you wouldn't expense things like stock, for accounting/tax purposes, until you sell the item. The purchase itself isn't usually expensed. Things like housing benefit are then based on the previous full year's profit/loss. But under UC, with their focus on cash flow rather than profit, stock purchases all go on the minus side. What's to stop people with "too much" profit from going out and topping up/improving their stock sufficiently to bring their profits down to whatever level they are aiming at to preserve their UC? Or, if they have a shop which trades well at Christmas, paying the rent on the 27th of December instead of sometime in January to bring down their profits for their busiest part of the year?

Well, um. Nothing will stop them. But generally speaking, businesses should account for expenses, including purchasing of stock according to the date of an incoming invoice. You'll find self-employed shop owners, for example, will all do month ends. There will be nothing to stop the self-employed person making purchase orders in convenient months for UC or otherwise - but only if cash flow allows and, presumably, only if their order book would make it worthwhile.

I don't know why you'd think you'd not account for the purchase of stock until after an item has been sold? It doesn't work like that. At all.

What *will* happen, is that instead of totting up all incoming and outgoing payments and receipts over a year, the self-employed will have to do it monthly. And they will *have* to declare incoming invoices in the month they were paid.

What will happen to the van driver who pays their insurance for a full year (because it's cheaper to do that) in the same month as the van needs repairs? And that month, they earn a week's less money because the van was out of action? They make a loss due to those high expenses. Yes, they'll get one month of high UC. But they won't be able to carry forward the loss to other months. So they'll get low UC for the other 11 months due to these high expenses and low earnings not being smoothed out through the year as they would with annual accounting now.

11 months low UC + 1 month high UC is less money in total (due to the month's loss not being counted) than 12 months middling UC.

It's just plain stupid. UC will not work properly for the self-employed. Thank the lord it won't affect me. Because I wouldn't be looking forward to it all. The planning involved just to avoid various idiocies would be a nightmare. And it would only adversely affect business running. A complete disincentive to any kind of entrepreneurial effort.

dktreesea

Sixer wrote: »

I don't know why you'd think you'd not account for the purchase of stock until after an item has been sold? It doesn't work like that. At all.

What *will* happen, is that instead of totting up all incoming and outgoing payments and receipts over a year, the self-employed will have to do it monthly. And they will *have* to declare incoming invoices in the month they were paid.

That may be a way to account for stock on a cash basis, but the entry for stock is usually:

Debit Stock (Asset, so a balance sheet/capital item)
Credit Cash, or Accounts Payable if payment is delayed

So far there's nothing to expense.

When you sell the stock, the entries would be:

Debit Cash or Accounts Receivable (balance sheet)
Credit Sales (profit and loss statement)

Debit Stock (profit and loss statement)
Credit Stock (asset, balance sheet item)

Hence my comment that you don't expense the stock until you have the revenue to go with it. That's a generally accepted accounting principle.

I can understand using cash accounting for people who sell their labour. You probably don't want to recognise your revenue until you have actually been paid. But for product based businesses the scope for manipulation of the results will be huge.

Say you buy £2k worth of stock and sell half of it for £3k. Following the correct accounting practice, if you do that every month you'll have £24k profit by the end of the year and will have built a stockpile of £12k in stock. Under UC you would still have your healthy stock pile built up but would have £12k income instead of £24k. Assuming the family of the self employed person would still receive some UC on £24k a year, that works out to a extra subsidy (if the 65% claw back pans out) of £7,800 a year. Tax free. Courtesy of other taxpayers.

SkyeKnight

dktreesea wrote: »

Say you buy £2k worth of stock and sell half of it for £3k. Following the correct accounting practice, if you do that every month you'll have £24k profit by the end of the year and will have built a stockpile of £12k in stock. Under UC you would still have your healthy stock pile built up but would have £12k income instead of £24k. Assuming the family of the self employed person would still receive some UC on £24k a year, that works out to a extra subsidy (if the 65% claw back pans out) of £7,800 a year. Tax free. Courtesy of other taxpayers.

Except that I think the £12k of stock will count as capital for the business owner - at least that's how I read this:

https://forums.moneysavingexpert.com/discussion/comment/57002491#Comment_57002491
"Seems if you own or are a partner in a business, the capital of that business (or your share of it) counts as your capital."

Anything over £6k reduces your UC and over £16k gets rid of it completely. Seems awfully complicated though...

dktreesea

SkyeKnight wrote: »

Except that I think the £12k of stock will count as capital for the business owner - at least that's how I read this:

https://forums.moneysavingexpert.com/discussion/comment/57002491#Comment_57002491
"Seems if you own or are a partner in a business, the capital of that business (or your share of it) counts as your capital."

Anything over £6k reduces your UC and over £16k gets rid of it completely. Seems awfully complicated though...

Stock is a business asset, so excluded from the calculation for determining capital.

samasama

Under Universal Credit, the self-employed will be forced to use cash accounting principles.

The ICAEW (Institute of Chartered Accountants in England & Wales) have expressed major concerns, there are a couple of statements on their website that are too long to copy, but some relevant extracts:

"Some of the particular issues which are likely to cause problems are as follows:

UC requires monthly reporting of results. This is too onerous for small businesses. Further, the monthly assessment periods will be aligned neither with calendar months nor with the accounting period of the business. The reporting requirements will thus create a considerable administrative burden.

Reporting is required within seven days of the month end. This is not long enough to enable the business to gather the bank statements and other information required for timely reporting.

Online reporting will be mandatory. This is unfair and discriminatory. Those businesses which do not have access to a computer or broadband will be discouraged from claiming.

A simplified cash basis for reporting income is being imposed on UC claimants without any proper consultation. Further, the cash-based system being proposed for UC is not the same as the system being proposed and currently under consultation for income tax. Thus businesses may have to prepare accounts in different ways for different purposes: UC, income tax and in some cases also VAT.

The calculation of income for UC is not the same as for income tax.

There is no carry forward from month to month of negative balances of income. This is unfair and compares unfavourably with the rules for income tax and the current system of tax credits, which allow relief for losses.

The rules for deductible expenses differ from tax rules and do not give relief for some important genuine business expenses, such as money spent employing a person in the business; marketing, advertising or bad debt collection; and interest. These are all costs which are likely to be incurred in running a normal ongoing business and which are allowable for income tax.

A business will be required to keep detailed records of the hours spent working from home and the activity then being undertaken. This is a further administrative task. And the proposed hourly deduction rates are too low particularly for those who live in rented accommodation. Further, we cannot see any reason for imposing a minimum number of hours for use of home to be allowable.

We consider that time spent dealing with customers, suppliers, fixed asset purchases, financing matters or employee issues (although these are less likely to be relevant for a very small business), are all normal and necessary activities if a business is to grow and succeed.

For an established business, UC will be based on a ‘minimum income floor’ (MIF) rather than actual profits or losses if lower. This will build in disincentives for businesses to spend what is necessary to enable a business to succeed.

We are concerned that there is no relaxation of the MIF for periods when a business experiences a genuine dip in profits. The MIF will also apply unfairly in months where large annual expenses are due such as an insurance premium, or a biannual income tax self assessment bill.

Self-employed UC claimants will be required to have ‘gateway interviews’ to demonstrate that they are genuinely in business. The number of interviews which will be needed to support UC claims from the newly self-employed will be very large and in the case of some specialist businesses, very technically demanding."

The ICAEW obviously know far more than most of us here, they say
"We are strongly of the view that if implemented as they stand, these proposals will do severe and lasting damage to the small business sector in the UK."

(if you want to read more, check out their website http://www.ion.icaew.com and particularly the two articles:
http://www.ion.icaew.com/TaxFaculty/25000
http://www.ion.icaew.com/TaxFaculty/25120


If you're employed, the figures you submit for UC will be directly related to the figures used for your tax/NI.

If you're self-employed you'll be paying tax/NI annually based on one set of figures, and you'll be submitting totally different figures for UC (which over the course of a year may not match due to different expenditure rules). In addition Council Tax Benefit (which is being ditched in many areas) is calculated using different figures/allowances. And if a business is VAT-registered, they may be required to submit returns based on yet more differing calculations.

coffeelover65

Whilst I think the new rules under UC will be too far, self employed income is already treated calculated differently for benefit purposes than it is for income tax so that's not really a new thing.

The current system used for self employed people in the benefits system just doesn't work as its widely abused and has been for years. In my job every SE worker will declare they work exactly 16 or 30 hours a week, regardless of the income they generate and most of you will know working that number of hours is a requirement for other elements and tax credits.

At present we have a system where SE workers can have an unsuccessful business which never makes any money which allows SE workers to be exempt from job centre reviews/sanctions/training/workfare schemes, and allowed to have their incomes topped up with tax credits.

I can't really see a system that the government could use instead that would get rid of this fraud and treat SE workers the same as employees and not allow people to be engaged in fake SE work that produces no income or an income less than the minimum wage. If tax credits currently was only paid to SE workers who earned above the minimum wage for the hours declared, I do wonder how many of those people would continue with their SE work.