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Low Incomes Tax Reform Group call for urgent rethink on self-employed rules under Universal Credit - Turn2us

Article about the Low Incomes Tax Reform GroupThe Low Incomes Tax Reform Group (LITRG), supported by a number of tax, business and accountancy organisations are calling for an urgent rethink on how small businesses and the self-employed will be dealt with under Universal Credit.

These views were set out in a letter to the Welfare Reform Minister, Lord Freud.

LITRG’s chairman, Anthony Thomas, said: "'The Government say that Universal Credit will ensure that work always pays. That will not be the case for many self-employed. There will be disincentives to taking up self-employed work, leaving some people unnecessarily trapped on welfare. There will also be a significant increase in bureaucracy for small business. Both of these are the opposite of what the Government want.'

The LITRG say that the mechanics of Working Tax Credit have so far worked well for small businesses in that they recognise the same profits and losses as for tax purposes. This means that where the tax system supports self-employed people through start-up or loss-making periods, or times when they are investing heavily to grow their business, tax credits do likewise.

Under the Universal Credit rules as currently proposed those advantages will be lost. Businesses will have to draw up two sets of accounts – one for HM Revenue and Customs (HMRC), the other for the Department for Work and Pensions (DWP) – and the latter will have to be done monthly, thereby massively increasing bureaucratic burdens. The basis of accounting favoured by DWP will not give full recognition to large items of expenditure in any one month, potentially heavily distorting the economic reality of how a business is doing.

Anthony Thomas also observed that:

"In many cases the income of self-employed earners will fall sharply making it, in some cases, uneconomic for them to continue to work. The proposed minimum income floor will further distort the picture and will mean that the self-employed will receive less benefit than employed claimants even though their income may be the same. Surely this cannot be right nor fair."

Read the Low Incomes Tax Reform Group press release (link opens in a new window)

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