Tax credits 13-14 affect 14-15 income?

Kayalana99

Hiya,

Im running a business atm and my plan is to not make any profit (by buying stock, new machinery etc in march before tax year ends)

So my tax credits wouldn't be affected for this year.

What happens then if say for example I earn an extra 10k through my business in 14-15 do I just let them know how much I am earning when I know? The last thing I want is to be over paid really but its abit confusing when they go by the year before.

BigAunty

You should now start researching the impact of Universal Credit on the self employed and monitor the date of its full implementation (its just at pilot stage now) if you are not currently aware of its plans.

Part of the changes there were prompted by the govts dislike of long-term benefit dependency by the self employed and the way that tax credits incentivise the recipient to focus on x hours required to be worked to be eligible for it with no compulsion/emphasis to make any profit.

In future under UC, there will be tougher conditionality for low or no profit self employed who are expected to be able to earn at least the NMW from their businesses within a year or so of start up.

Kayalana99

Thank you both, I will take this on board and look into UC.

I am just trying to work out how next April will be, (FYI I am actually employed but on mat leave atm so it will cover me for the 16hours anyway but I will look into it)

I am hoping not to need tax credits one day but I think I need to earn around £700 profit a month to live in the same lifestyle(without working ...which would only put us at a joint income of 23k and I'd still be entitled to something....so should be ok

zagfles

There's a £5k disregard for income increases from one tax year to the next, so if your income goes up £10k you'd need to tell them or you'll likely have a big overpayment.

dktreesea

BigAunty wrote: »

In future under UC, there will be tougher conditionality for low or no profit self employed who are expected to be able to earn at least the NMW from their businesses within a year or so of start up.

Why does this statement keep rearing its head? There's no conditionality under UC for the self employed if they are gainfully employed for the hours they are expected to work under UC. They are just subject to the MIF for the hours they are required to work to get benefits, when it comes to calculating the benefits. It doesn't matter what they earn, provided they are gainfully employed, i.e. working with a view to earning a profit.

They don't have to earn the NMW at all. The UC is calculated based on the higher of their actual profit or the NMW for the hours they are required to work.

BigAunty

dktreesea wrote: »

Why does this statement keep rearing its head? There's no conditionality under UC for the self employed if they are gainfully employed for the hours they are expected to work under UC. They are just subject to the MIF for the hours they are required to work to get benefits, when it comes to calculating the benefits. It doesn't matter what they earn, provided they are gainfully employed, i.e. working with a view to earning a profit.

They don't have to earn the NMW at all. The UC is calculated based on the higher of their actual profit or the NMW for the hours they are required to work.

It comes from the original govt DWP paper on UC that made it clear they expect those who run poorly performing businesses to consider taking up regular employment on top of.instead of, or wind down their failing businesses.

Also, this that makes clear the MIF is based on the NMW and will assume that they've reached this income when it comes to calculating their benefits, even if they have not.

"If there are no limitations on the number of hours you can work, the minimum income floor is likely to be the equivalent of you working 35 hours per week at the National Minimum Wage for your age group. Your Universal Credit payment will reflect this assumed level of earnings and so will be less than you would receive if you were unemployed or only working a few hours per week.If you earn less than the minimum income floor in any month, Universal Credit will not bridge that gap. This will encourage you to grow your business and make sure it can support you."

https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/254254/uc-and-self-employment-quick-guide.pdf

In the past, a person could claim maximum WTC and other benefits due to their low business profits in perpetuity. Now under UC, they have a 1 year exemption from the MIF (which is based on the NMW) while they grow their business and that's it. That is a condition, a very big condition, to have an entitlement to maximum UC for the 1st year of the business only, and then get treated as if they are achieving a notional salary even if they don't.

BigAunty

dktreesea wrote: »

They don't have to earn the NMW at all. The UC is calculated based on the higher of their actual profit or the NMW for the hours they are required to work.

But the key thing is that the self employed will be treated as if they have earned the NMW and this will be a shock to many who currently get benefits that currently happily accept that they earn just £1-2 an hour and the public purse merrily tops up their income very many times greater than this.

This is an enormous change to mindset and a very different way of calculating benefits which is going to cause upset to those who are self employed who have enjoyed large sums of housing benefit, tax credits, council tax discount and so on because their dismal profits have actually catapulted them into long term high benefit rates. This time they are effectively punished for low profits.

Those who are earning £1-2 an hour from self employment will be treated in the UC calculations as if they are earning £6+ and they will have to meet with people from the job centre, as a condition of getting UC, to receive guidance, including alternative options.

SkyeKnight

BigAunty wrote: »

Those who are earning £1-2 an hour from self employment will be treated in the UC calculations as if they are earning £6+ and they will have to meet with people from the job centre, as a condition of getting UC, to receive guidance, including alternative options.

I thought it was actually an either/or situation.

Either: You get treated in the UC calculations as though you earn £6+ an hour (for however many hours you are expected to work - varies by situation).

Or: You go to the job centre for guidance (who will expect you to find additional income sources, including extra part-time work or quitting your business and working elsewhere full-time).

Icequeen99

SkyeKnight wrote: »

I thought it was actually an either/or situation.

Either: You get treated in the UC calculations as though you earn £6+ an hour (for however many hours you are expected to work - varies by situation).

Or: You go to the job centre for guidance (who will expect you to find additional income sources, including extra part-time work or quitting your business and working elsewhere full-time).

That was how it was set out originally in the discussions as the bill was going through Parliament but they changed this when they published the Act and the Regulations.

If you are gainfully self-employed, then you are subject to the MIF. You would only have conditionality if you are not found to be gainfully self-employed for the relevant number of hours.

IQ