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The 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
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
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