Self Employment no profit

Pennywise

dori2o wrote: »

I know this is slightly off topic but the facts are entirely clear when it comes to people in employment. Increase the NMW and you immediately reduce the amount of money paid out in tax credits. It is that simple.

Breathtaking naivity here.

Unfortunately, many people will simply reduce their hours if they got paid more per hour, so as to keep their benefits. This effect can be seen daily on these boards and from my real life experience. Low income people get offered a payrise or overtime or extra hours and their first question is "how much benefits will I lose". For higher earners, the question is "how can I keep my child benefit" or "high can I avoid higher rate tax", or for even higher earners (usually doctors and dentists), it's "how can I avoid losing my personal allowance now that my income is over £100k".

The ONLY way that an increase in NMW would work to reduce tax credits is if there was a change in the hours worked part of the WTC calculation to prevent abuse, i.e. to stop people "earning" the same for tax credits by simply reducing their working hours, so their wage and WTC stay the same for less work - that is the obvious unintended consequence! The marginal income loss for increased income on WTC is about 70%, i.e. the NMW increase would mean more tax and NIC deductions and less WTC so the worker would only see around 30% increase in their pocket and a lot of people would rather work less and have more free time for such a paltry amount (look at GPs who gave up out of hours for a similar scenario of very little loss after tax/NIC for more time in bed!)

Pennywise

Killerseven wrote: »

Nobody ever checks, the government is happy because the unemployment numbers go down and they can quote how great their government is doing.

Of course they check. There are whole departments devoted to the fight against WTC fraud. I've had a number of business clients who've had their claims withdrawn and given huge demands for repayment when they've been unable to prove the amount of hours that they claim to have worked, or where they have deliberately kept their income low to increase a WTC claim (i.e. where they set their business up a limited company and simply don't take any money out of it for a year to trigger a huge claim). There are even specialist accountants/lawyers who make their living out of defending clients against WTC evasion/fraud challenges by HMRC.

dori2o

Pennywise wrote: »

Breathtaking naivity here.

Unfortunately, many people will simply reduce their hours if they got paid more per hour, so as to keep their benefits. This effect can be seen daily on these boards and from my real life experience. Low income people get offered a payrise or overtime or extra hours and their first question is "how much benefits will I lose". For higher earners, the question is "how can I keep my child benefit" or "high can I avoid higher rate tax", or for even higher earners (usually doctors and dentists), it's "how can I avoid losing my personal allowance now that my income is over £100k".

The ONLY way that an increase in NMW would work to reduce tax credits is if there was a change in the hours worked part of the WTC calculation to prevent abuse, i.e. to stop people "earning" the same for tax credits by simply reducing their working hours, so their wage and WTC stay the same for less work - that is the obvious unintended consequence! The marginal income loss for increased income on WTC is about 70%, i.e. the NMW increase would mean more tax and NIC deductions and less WTC so the worker would only see around 30% increase in their pocket and a lot of people would rather work less and have more free time for such a paltry amount (look at GPs who gave up out of hours for a similar scenario of very little loss after tax/NIC for more time in bed!)

It's a rather pessimistic view to take.

Whilst there will be some that do reduce their hours I doubt it would be anything close to a majority.

No matter how much better off, even at 30%, it's still more income than they were in receipt of previously.

By increasing NMW you cut tax credits, that is a fact. You can then apply those savings into other areas. Maybe further increasing the PA (though there is a limit as how much benefit this brings), cutting/abolishing NIC's, especially class 1, reducing CT to make the UK more competitive and bring new business.

If people can see the value of work in their pay packet rather than in a bank deposit from the state then that has to be better for all of us dooesn't it?

dktreesea

dori2o wrote: »

Why is it not OK for someone with a small self employed business, that does turn a profit but not at the rate of NMW x 35hrs, to claim TC in order to top up their earnings, yet it is perfectly acceptable to prop up many employers who only survive because of the very same TC system which provides these companies with a huge subsidy which allows them to pay a below cost of living salary.

Should anyone suggest that the NMW be increased to reflect the true cost of living then there is an almighty backlash. These companies would go bust, it wouldn't be fair, and yet it's perfectly acceptable to decimate the lives of people who are working, whose businesses are viable and profitable, just not at the rate of the NMW.

By all means stop those with none viable/Hobby type businesses from claiming WTC, but I fail to see why someone who is hardworking and who is trying to do the right thing, should be penalesde when we allow companies to exist who would not be viable should they have to pay a living wage and not rely on the huge employers subsidy which is TC.

I know this is slightly off topic but the facts are entirely clear when it comes to people in employment. Increase the NMW and you immediately reduce the amount of money paid out in tax credits. It is that simple.

Because the current system is not equitable. Someone opting to work in the "working for someone else" world has to earn/profit from the labour to the tune of at least 24 hours a week at the NMW, per household, before they qualify for WTC. A single person has to work at least 30 hours a week at the NMW in order to qualify.


The rules for the self employed should at least be the same. Either actually earn that much in profit over a year, or be deemed to earn that much when calculating their WTC entitlement.


How is it fair that the person selling their labour has to have an income of £156 a but the self employed person, working the same hours, could make the same claim for WTC even if they only earned £1 for the whole year?

mattcanary

Killerseven wrote: »

Very good post.

But soon if people are assumed to be making NMW x35hrs each then many S.E businesses will crumble.

They would be better off getting low stress a min wages job. Running your own business is way harder than just working for a company, depending on what job you do though.

It would also mean that customers would be more reliant on large companies when buying things - and therefore they would have less choice.Allowing large companies to dominate even more so than they do already

mattcanary

trollopscarletwoman wrote: »

"They do just view it as easier than having to to the jobcentre and have all the pressure to look for jobs."

Lots of truth in that.

What's wrong in that?
Lots of people want an easy a life as possible (including many DWP workers, I'm sure!).

If self-employed people are providing a useful service to customers that is valued, then what is wrong in that?

It's better than fruitlessly trudging along to the JobCentre that offers little support, help (or even signposting) to most jobseekers, every week or fortnight. With the added threat of being sanctioned for the smallest error always hanging over them.

If the JobCentre offered a worthhile service, then I might then agree with you.

Added to which, people on Working Tax Credit can also apply for employed work. You don;t have to be on JobSeekers Allowance to be doing this.

mattcanary

Pennywise wrote: »

Breathtaking naivity here.

Unfortunately, many people will simply reduce their hours if they got paid more per hour, so as to keep their benefits. This effect can be seen daily on these boards and from my real life experience. Low income people get offered a payrise or overtime or extra hours and their first question is "how much benefits will I lose". For higher earners, the question is "how can I keep my child benefit" or "high can I avoid higher rate tax", or for even higher earners (usually doctors and dentists), it's "how can I avoid losing my personal allowance now that my income is over £100k".

The ONLY way that an increase in NMW would work to reduce tax credits is if there was a change in the hours worked part of the WTC calculation to prevent abuse, i.e. to stop people "earning" the same for tax credits by simply reducing their working hours, so their wage and WTC stay the same for less work - that is the obvious unintended consequence! The marginal income loss for increased income on WTC is about 70%, i.e. the NMW increase would mean more tax and NIC deductions and less WTC so the worker would only see around 30% increase in their pocket and a lot of people would rather work less and have more free time for such a paltry amount (look at GPs who gave up out of hours for a similar scenario of very little loss after tax/NIC for more time in bed!)

But companies would still need to employ the same number of staff as above, even though they are forced to pay a higher wage.
Surely this could help reduce the unemployment figures.

The government could also look at gradually abolishing Working Tax Credit (which is a benefit to companies, as much a sit is a benefit to individuals).

I suppose it could be argued that companies would try and get by on fewer staff (and therefore lower wages than if they kept all existing staff on at forced increased wages).
But even if that happened there would be some benefits to society. It would mean there would be less scrapegoating of people on JobSeekers Allowance as many people that were on low wages topped up by orking Tax Credit may well also find themselves having to claim JobSeekers Allowance.
It would also force the government to look at finding ways of providing the means by which companies can operate effectively, producing worthwhile, highly-valued goods and services whilst also paying their employees a decent rate of pay.

Working Tax Credits are just a smokescreen for people claiming them, companies that routinely pay their staff the National Minimum Wage, and the government alike.
It would be a huge positive if they were abolished by forcing companies to pay a higher wage to their employees.

dori2o

dktreesea wrote: »

Because the current system is not equitable. Someone opting to work in the "working for someone else" world has to earn/profit from the labour to the tune of at least 24 hours a week at the NMW, per household, before they qualify for WTC. A single person has to work at least 30 hours a week at the NMW in order to qualify.


The rules for the self employed should at least be the same. Either actually earn that much in profit over a year, or be deemed to earn that much when calculating their WTC entitlement.


How is it fair that the person selling their labour has to have an income of £156 a but the self employed person, working the same hours, could make the same claim for WTC even if they only earned £1 for the whole year?

The person employed by a company has significantly more security and far less outgoings than someone self employed.

Yes tax credits for someone in employment are guaranteed to be calculated at least at 'x' number of hours at NMW, but the very big difference is that they are actually receiving that money. The self employed will be deemed as earning that money even if they done, meaning they are not treated as an equal.

The Government have fudged the figures by pushing thousands of people into self employment and have rejoiced at this fact despite many of those newly self employed being unable to guarantee a profit of at least NMW at 'x' hours.

It's fine and dandy saying these people should give up self employment and get a job working for a business, but where exactly are these jobs.

Is it not better to have them working in some capacity (assuming that the business is viable and not a hobby) than to have them languishing on JSA?

Once this policy comes into force unemployment is going to jump massively.

This policy will decimate a huge number of 1 man band businesses, a lot of which are independant high street shops, market traders, odd job men/women.......

dktreesea

dori2o wrote: »

The person employed by a company has significantly more security and far less outgoings than someone self employed.

Yes tax credits for someone in employment are guaranteed to be calculated at least at 'x' number of hours at NMW, but the very big difference is that they are actually receiving that money. The self employed will be deemed as earning that money even if they done, meaning they are not treated as an equal.

The Government have fudged the figures by pushing thousands of people into self employment and have rejoiced at this fact despite many of those newly self employed being unable to guarantee a profit of at least NMW at 'x' hours.

It's fine and dandy saying these people should give up self employment and get a job working for a business, but where exactly are these jobs.

Is it not better to have them working in some capacity (assuming that the business is viable and not a hobby) than to have them languishing on JSA?

Once this policy comes into force unemployment is going to jump massively.

This policy will decimate a huge number of 1 man band businesses, a lot of which are independant high street shops, market traders, odd job men/women.......

The whole point of working isn't just to have a viable business; it's to be able to support yourself, from your own efforts, at least to the extent of hours worked * the NMW. Surely that should hold true for those who choose to support themselves and rely on the state for a top up as it does for low income employees?


Yes, it may well be that a lot of people who currently are opting to work for less than the NMW will be out of pocket with the new policy, but what's to stop the one man bands working harder? If a market trader needs to work 7 days a week in order to make a profit equivalent to "4 hours a week at the NMW, so £156 a week, then why shouldn't he do just that?

Pennywise

Business profits will always vary, sometimes even a successful long term business will make a loss. The rules need to be strong enough to prevent clear abuse but to support genuine businesses having a slow start up or a bad year.

There have been far too many "pretend" businesses set up simply to exploit tax credits. It's been endemic with market stalls, dog walkers, cleaners, ebayers and small corner shops - many of these didn't have a hope in hell's chance of ever being self supporting and for many, it was clear that the proprietors never really intended to be self supporting. I've seen dozens where the owners just worked long and hard enough to cover the costs and minimum working hours so that they achieved break even and then "lived" on the tax credits.

It's nothing new, it started virtually as soon as Gordon brought in tax credits - the jungle drums in the welfare dependent community went into over-drive and the usual suspects of the work-shy went into action. If only they put as much effort into proper working rather than fleecing the over-generous benefit system.

Even for genuine businesses, it's been too easy to abuse. The classic case was where a tradesman could get HMRC to pay for the full cost of new van for themselves by a mix of higher tax credits and lower tax and NIC - in fact they'd profit because the tax credits and tax/nic savings could actually be higher than the van cost! A classic example of idiotic politicians and treasury mandarins not realising how their new rules would interact.