Universal credit

Universal credit plans proposed by the government will be ‘particularly onerous and burdensome’ for small businesses and the self-employed, CIOT has warned. According to the tax group there are at least three significant ramifications for the UK’s entrepreneurs, should the government’s current plans to replace the tax credits system with a single credit be pushed through without amendments.

The areas of concern highlighted by CIOT include a requirement for eligible self-employed individuals to report their monthly earnings in a different way to the one they use to calculate tax and to do so within a week of their month end.

The tax specialists are also alarmed that while under the current tax credits system cash payments are recognised on a month by month basis, the universal credit does not. This means that someone could earn £1m in the first month and nothing for the rest of the year but still be entitled to the credit for the following 11 months.

Andrew Gotch, chairman of the CIOT’s Owner Managed Business sub-committee, welcomed the government’s intention of simplifying the tax credit system but said:

‘The universal credit proposals seem to fly in the face of simplicity when it comes to the reporting requirements being imposed on small employers and the self-employed. Requiring businesses to report payments to employees “on or before” the time they are made will present huge problems in some sectors. Requiring small businesses to report their earnings online within seven days of the end of a monthly assessment period is totally impractical. Most businesses will struggle mightily to collect the necessary information in this time and many will fail to do so, thus being involuntarily excluded from benefits.’

‘In summary, we think the regulations require much further thought. We would be pleased to work with the DWP [Department for Work and Pensions] and the Social Security Advisory Committee to try to develop something that is workable for all parties.’

DWP estimates suggest that around 60,000 homes with self-employed earners could be affected by the proposed universal credit, though CIOT consider the figure could be significantly higher.