More than 2.5 million people to be moved onto universal credit from today, leaving 900,000 worse off

ElwoodBlues

calcotti said:

When you pay HMRC that is a business expenses. I think you could choose to spread your tax liability by making payments to HMRC across the year - that could help smooth the fluctuations.

Corporation tax is due 9 months after the accounting year end. I can't spread the payments in advance because it's impossible to know how much corporation tax will be due after any particular year. That's why companies use accountants to prepare EoY accounts. My company's annual accounting period has year end of 31st May. So for example next year, corporation tax on profits generated between 1st June 2022 and 31st May 2023 will be due by 28th Feb 2024.

UC expects me to have the funds that I've put aside for the tax payment to be available as personal income for me to live off. Yet if I've spent it as personal income, then I won't have it to pay the corp tax bill when that is due. UC expects me to just magic the money from thin air and then claim it back from them after the end of the month.

calcotti said:

ElwoodBlues said:They could just treat dividend payments as income. 

Dividends are completely ignored for UC. A dividend is simply a transfer of profit from the business to you and the profit has already been taken into account in the UC calculation as a result of the way you report your business income and expenditure.

Yes, I know that's how they've decided to calculate UC, I'm saying they could have done it differently and more fairly.

They are putting a square peg in a round hole. And in this case the round hole is my bum! 

calcotti

I appreciate you will not know the details of your tax liability in advance. Nonetheless I thought it was possible to pay advance instalments based on estimated liability. It was just a suggestion - I am not familiar with corporation tax.

NedS

ElwoodBlues said:

calcotti said:

When you pay HMRC that is a business expenses. I think you could choose to spread your tax liability by making payments to HMRC across the year - that could help smooth the fluctuations.

Corporation tax is due 9 months after the accounting year end. I can't spread the payments in advance because it's impossible to know how much corporation tax will be due after any particular year. That's why companies use accountants to prepare EoY accounts. My company's annual accounting period has year end of 31st May. So for example next year, corporation tax on profits generated between 1st June 2022 and 31st May 2023 will be due by 28th Feb 2024.

UC expects me to have the funds that I've put aside for the tax payment to be available as personal income for me to live off. Yet if I've spent it as personal income, then I won't have it to pay the corp tax bill when that is due. UC expects me to just magic the money from thin air and then claim it back from them after the end of the month.

If you have money put aside for upcoming tax liability, this money can be disregarded as capital by UC as it is essential to the running of your business.

Assuming you have well separated bank accounts for personal and business purposes, and assets that belong to the business can be disregarded as capital as long as they are essential for the (ongoing) running of the business. So if you have a large amount of money put aside for a pending tax bill, you should be able to evidence that by showing the profits from last year that the tax relates to. It is important you are able to clearly differentiate between assets (capital, property etc) that belongs to the business (and is essential to the running of the business - you can't just be sat on £50k cash from previous profits within the business which you are yet to pay out in dividends) and personal assets (savings, property) that exist outside of your business.

You must declare all of these assets when making your claim and a decision maker will decide which assets are essential to the running of your business and can be disregarded and which assets are personal and are taken into account when determining your entitlement to UC. It just makes it a LOT easier to sort out and make a correct decision on where the claimant has clearly differentiated accounts for business and personal assets.

OhWow

andrewmp said:

OhWow said:

andrewmp said:

OhWow said:

andrewmp said:

 tx credits (which aren't/weren't technically benefits).

Paid by the Welfare state to those on low income and not based on the contributions of the claimant: Tax Credit is a welfare benefit. Not to be confused with a tax benefit.

I thought that might mean that they are different to a benefit, technically.  Otherwise you would think it would just say 'the following 6 benefits are ending.'

They do, although they say they say "replacing" and not "ending"

If you already get other benefits

Universal Credit is replacing the following benefits:

• Child Tax Credit
• Housing Benefit
• Income Support
• income-based Jobseeker’s Allowance (JSA)
• income-related Employment and Support Allowance (ESA)
• Working Tax Credit

If you currently get any of these benefits, you do not need to do anything unless:

https://www.gov.uk/universal-credit

In 2019 the Department for Work and Pensions started to move claimants in receipt of one or more of the following benefits to Universal Credit:

• Working Tax Credit
• Child Tax Credit
• income-based Jobseeker’s Allowance
• income-related Employment and Support Allowance
• Income Support
• Housing Benefit

https://www.gov.uk/government/news/the-universal-credit-transitional-provisions-regulations-2022

My point is there is a clear distinction made between benefits and tax credits.  Therefore, my original assertion that tax credits are technically not a benefit does appear to have basis in fact.

As the quotes I gave showed, Tax Credit is a welfare benefit too. It was for claimants who had a low salary, or for if they did not work at all/work much and had children.

calcotti

The cost of Tax Credits appears to be included under the category of Welfare Budget as reported by the government.
https://www.ons.gov.uk/economy/governmentpublicsectorandtaxes/publicsectorfinance/articles/howisthewelfarebudgetspent/2016-03-16

andrewmp

calcotti said:

The cost of Tax Credits appears to be included under the category of Welfare Budget as reported by the government.
https://www.ons.gov.uk/economy/governmentpublicsectorandtaxes/publicsectorfinance/articles/howisthewelfarebudgetspent/2016-03-16

It's definitely classed within welfare, but they quite often use the phrase 'benefits and tax credits".  I've got no idea why, but interestingly they're the only welfare payments administrated by the HMRC too.

My best guess is it had something to do with the fact that most families with kids qualified for child tax credits when they first came out.

calcotti

It really seems of no practical consequence anyway.

ElwoodBlues

NedS said:

ElwoodBlues said:

calcotti said:

When you pay HMRC that is a business expenses. I think you could choose to spread your tax liability by making payments to HMRC across the year - that could help smooth the fluctuations.

Corporation tax is due 9 months after the accounting year end. I can't spread the payments in advance because it's impossible to know how much corporation tax will be due after any particular year. That's why companies use accountants to prepare EoY accounts. My company's annual accounting period has year end of 31st May. So for example next year, corporation tax on profits generated between 1st June 2022 and 31st May 2023 will be due by 28th Feb 2024.

UC expects me to have the funds that I've put aside for the tax payment to be available as personal income for me to live off. Yet if I've spent it as personal income, then I won't have it to pay the corp tax bill when that is due. UC expects me to just magic the money from thin air and then claim it back from them after the end of the month.

If you have money put aside for upcoming tax liability, this money can be disregarded as capital by UC as it is essential to the running of your business.

Assuming you have well separated bank accounts for personal and business purposes, and assets that belong to the business can be disregarded as capital as long as they are essential for the (ongoing) running of the business. So if you have a large amount of money put aside for a pending tax bill, you should be able to evidence that by showing the profits from last year that the tax relates to. It is important you are able to clearly differentiate between assets (capital, property etc) that belongs to the business (and is essential to the running of the business - you can't just be sat on £50k cash from previous profits within the business which you are yet to pay out in dividends) and personal assets (savings, property) that exist outside of your business.

You must declare all of these assets when making your claim and a decision maker will decide which assets are essential to the running of your business and can be disregarded and which assets are personal and are taken into account when determining your entitlement to UC. It just makes it a LOT easier to sort out and make a correct decision on where the claimant has clearly differentiated accounts for business and personal assets.

Yes, I know the money put aside should be disregarded as capital. But it'll have already been considered as income, before it became capital. So in a month where the business makes a £3000 profit (totally fictional, as it's only practically possible to calculate taxable profits on an annual basis anyway). UC will regard me as having an income of £3000. But I don't have a personal income of £3000 available to me. 19% of that isn't my income at all - it's corp tax due to be paid to HMRC. My monthly UC will be reduced by considering the 19% in their calculations.

As a company director, I'm legally obliged to put the best interests of the company first, so whilst I could just withdraw all the profits to use personally (as UC expects me to do), that would be detrimental to the company. And how is it supposed to then pay the corp tax bill if I had done that? Yes, eventually UC will consider the corp tax as an expenditure in the month it gets paid, but it highlights the major problem that UC works everything in arrears, yet the very people it is intended to help are those with low incomes, living close to (or below) the breadline.

In contrast, my tax credits payments have always been very close to spot on, so at the end of year review, the under or over payment is negligible. UC just seems fiendishly complicated, and doesn't achieve anything extra, other than aiding the cashflow of the DWP bank account.

calcotti

ElwoodBlues said:  So in a month where the business makes a £3000 profit (totally fictional, as it's only practically possible to calculate taxable profits on an annual basis anyway).

UC is not interested in taxable profit - just income in and out on a cash accounting basis.

ElwoodBlues said:In contrast, my tax credits payments have always been very close to spot on, so at the end of year review, the under or over payment is negligible. UC just seems fiendishly complicated, and doesn't achieve anything extra, other than aiding the cashflow of the DWP bank account.

UC is undoubtedly more complicated for self employed and in many cases will result in a lower entitlement. Studies show that a self employed person with fluctuating income is likely to get less UC than an employed person earning the same amount.