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JohnB

Universal Credit - The End of Small Businesses?

There have been a few discussions on the introduction of the Universal Credit, but this analysis of how it affects small businesses is seriously scary. It looks like they're trying to wipe out any business that doesn't make serious money very quickly, unless you can do it without claiming benefits Crying or Very sad.
http://www.permaculturehouseintotnes.co.uk/1/post/2013/03/universal-credit-and-the-self-employed.html
Rob R

I've said what I think about it, and the changes that are so often omitted from such articles elsewhere, so I won't repeat it.

Small businesses existed before Tax Credits so I expect them to carry on afterwards. If a business can support you it will carry on, if it can't support you but you have support from elsewhere (a partner's income, for example) it will continue, what I don't think will continue are stagnant micro-businesses that don't have any plans for growth. These have cropped up since TCs were introduced and some will already be making plans to be independent by 2017, others won't make any plans & are likely to fail.
Hairyloon

If Universal Credit is available for people on a low income, then it will subsidise big businesses in the same way that Tax credits do now.

Why subsidise big business and not little ones?
Rob R

If Universal Credit is available for people on a low income, then it will subsidise big businesses in the same way that Tax credits do now.

Why subsidise big business and not little ones?


Why will it not subsidise little ones?
john of wessex

Bear in mind as well that the 'conditionality' rules will also be extended to part time workers as well.

But of course Employers still wont have to pay a decent wage..........
Hairyloon

If Universal Credit is available for people on a low income, then it will subsidise big businesses in the same way that Tax credits do now.

Why subsidise big business and not little ones?


Why will it not subsidise little ones?
That was the implication of OP.
Will they be asking equivalent questions of the bigger employer?
i.e. Would your business model be sustainable if your staff were not topped up with tax credit and you had to pay a living wage?
Rob R

No, not a living wage, a minimum wage, which employers have to pay, big or small. Now they appear to be encouraging it for self employed folk too. lettucewoman

I've said what I think about it, and the changes that are so often omitted from such articles elsewhere, so I won't repeat it.

Small businesses existed before Tax Credits so I expect them to carry on afterwards. If a business can support you it will carry on, if it can't support you but you have support from elsewhere (a partner's income, for example) it will continue, what I don't think will continue are stagnant micro-businesses that don't have any plans for growth. These have cropped up since TCs were introduced and some will already be making plans to be independent by 2017, others won't make any plans & are likely to fail.

Rob...did you actually READ the link above...particularly this part?

Once entitlement is established, payment will be based on your earnings in an assessment period of one calendar month. You report your income for that month, less any expenses you have paid out that month. The remainder will be treated as your 'income'. You cannot carry forward any business revenue, even if you have regular, foreseeable expenditure coming up in the future. Seasonal fluctuations in income are not taken into account for the purpose of calculating self-employed earnings. If your expenses that month are greater than your income, the loss cannot be carried forward to a future month. So although the Regulations refer to 'gross profit', this effectively means that self employed income is assessed on the basis of business revenue rather than profit. This ludicrous notion is completely devoid of logic or fairness. How can a business be expected to treat all income as being available to live on, just because it isn't spent that month? This is incompatible with annual accounting, and mitigates against ensuring that your business holds even small reserves to see you through market fluctuations let alone any notion of re-investment. See Reg.21 (Assessment periods) and Reg.57 (Self employed earnings).

Revenue is not necessarily income, but this means trying to plan ahead on a small amount of revenue will be next to impossible...not to mention seasonal fluctuations .....
NorthernMonkeyGirl

I'm a dunce when it comes to business/finance, but even I' can say that is retarded.

I thought the basic idea was that you did all the maths in March, worked out your income for the year, then paid a lump sum to HMRC? Thus fluctuations, losses, bumper months would all be fairly accounted for?

Or at the very least there was an estimated monthly income that was finalised at the end of the year and sorted out then?
Katieowl

I've been pondering on this since it was first mentioned here, and I think it's going to be the final straw for lots of people.

Firstly it assumes that you want your business to continue to increase, and that you will be able to expand to a point where you are making fistfuls of money. It also seems to suggest that if you can't pay yourself the minimum wage (or whatever they seem to deem acceptable) that what you are doing is not worthwhile.

It might only be a few jelly beans income for you, but it might be all you can manage and better than nothing!!! So all these underemployed people are going to be expected to step away from their businesses and join the hoards looking for paid work? Either that or they will decide to just chuck it all in and go on the dole, claiming housing benefit, and council tax rebates etc on top of any living expenses they are entitled to? Or we can decide to carry on with even less income Smile Thank god I make food, because at least if I don't manage to sell it to pay the bills, I can eat it!


Kate
Rob R

I've said what I think about it, and the changes that are so often omitted from such articles elsewhere, so I won't repeat it.

Small businesses existed before Tax Credits so I expect them to carry on afterwards. If a business can support you it will carry on, if it can't support you but you have support from elsewhere (a partner's income, for example) it will continue, what I don't think will continue are stagnant micro-businesses that don't have any plans for growth. These have cropped up since TCs were introduced and some will already be making plans to be independent by 2017, others won't make any plans & are likely to fail.

Rob...did you actually READ the link above...particularly this part?

Once entitlement is established, payment will be based on your earnings in an assessment period of one calendar month. You report your income for that month, less any expenses you have paid out that month. The remainder will be treated as your 'income'. You cannot carry forward any business revenue, even if you have regular, foreseeable expenditure coming up in the future. Seasonal fluctuations in income are not taken into account for the purpose of calculating self-employed earnings. If your expenses that month are greater than your income, the loss cannot be carried forward to a future month. So although the Regulations refer to 'gross profit', this effectively means that self employed income is assessed on the basis of business revenue rather than profit. This ludicrous notion is completely devoid of logic or fairness. How can a business be expected to treat all income as being available to live on, just because it isn't spent that month? This is incompatible with annual accounting, and mitigates against ensuring that your business holds even small reserves to see you through market fluctuations let alone any notion of re-investment. See Reg.21 (Assessment periods) and Reg.57 (Self employed earnings).

Revenue is not necessarily income, but this means trying to plan ahead on a small amount of revenue will be next to impossible...not to mention seasonal fluctuations .....

Of course I did, I also commented on it. However as you & I fundamentally disagree on whether businesses should be subsidised at all there isn't much point going over that again. The author has also said that she hasn't looked into the UC system in it's entirity.
JohnB

I can understand stopping people earning peanuts from a non viable business, or hobby, and using it as a way to live off benefits, as that isn't fair.

But for people struggling to get by, and who need benefits to survive, and those at the early stages of a business that will take time to grow, it's totally unfair. A lot of people who start small businesses can't keep proper accounting records , and it used not to matter too much, as they could pay someone to sort out a shoebox full of papers at the year end, but they will need a proper accounting system from day one, on top of everything else they need to do. I spent years doing accounts for small businesses, and just don't see how many of them would be able to get everything together in time, or be able to afford to pay someone for the extra work involved.

I know someone who has struggled with health issues for years, and can't get a job she can either cope with for long, or that pays enough to live on. The benefits people suggested that she became self employed, and she started a business doing something new to her, but that she enjoys, but she can't live without WTC, housing benefit and disability benefits too, and I don't see that changing. However, the business gets her out doing things and meeting people, and her health is better for it. There is no way this business will be acceptable under this new system, and the extra pressures on her will be too much to handle. So she will probably end up costing the state far more.

I broke the news to a local small shopkeeper yesterday, who was vaguely aware, but not of all of it. She said a lot of her fellow shopkeepers in town will be affected too. These are all people who work hard, and do their best, but I suppose it saves Tesco and the like putting them out of business when they move in.

I think it could have serious implications for the social enterprise I'm working on setting up at the moment, and I certainly won't qualify for it, meaning I will have to put more effort into trying to earn money in the short term, rather than working towards better long term prospects.
Hairyloon

A lot of people who start small businesses can't keep proper accounting records , and it used not to matter too much, as they could pay someone to sort out a shoebox full of papers at the year end, but they will need a proper accounting system from day one, on top of everything else they need to do.
That is a "don't" not "can't". It is not difficult, all you have to do is write down everything that goes in or out as it goes in or out.
Probably it is a good idea to push people into doing this.
Quote:
I think it could have serious implications for the social enterprise I'm working on setting up at the moment, and I certainly won't qualify for it, meaning I will have to put more effort into trying to earn money in the short term, rather than working towards better long term prospects.

Is that "you" won't qualify as yourself, or that the social enterprise won't qualify?
If the latter, then I would hope there is a workaround else charities will no longer be able to employ volunteers.
JohnB

That is a "don't" not "can't". It is not difficult, all you have to do is write down everything that goes in or out as it goes in or out.
Probably it is a good idea to push people into doing this.

Strictly speaking they don't, but doing paperwork doesn't come naturally to a lot of people, especially when they are busy doing what they went into business for. In an ideal world it would be good to push people into doing it, but we're talking about imperfect living creatures, not machines!

Is that "you" won't qualify as yourself, or that the social enterprise won't qualify?
If the latter, then I would hope there is a workaround else charities will no longer be able to employ volunteers.
It's me, but I think it will cause problems for businesses where the aim is to do good, rather than to be ruthless money making machines. And where a business is built gradually for the long term, rather than for short term gain with no long term planning.
Rob R

A lot of people who start small businesses can't keep proper accounting records , and it used not to matter too much, as they could pay someone to sort out a shoebox full of papers at the year end, but they will need a proper accounting system from day one, on top of everything else they need to do.
That is a "don't" not "can't". It is not difficult, all you have to do is write down everything that goes in or out as it goes in or out.
Probably it is a good idea to push people into doing this.


Doing it every month rather than every year is much more efficient as it doesn't give you chance to forget where money went. OK it took me six months to get an invoice out of Vodafone but as my new years resolution was to tighten up my bookingkeeping it's meant that I was reminding them about it every month, instead of every year. Earning money & keeping a track of expenses isn't exactly an unreasonable demand to place upon businesses.
Jamanda

Where will not for profit organisations fit in? Rob R

Where will not for profit organisations fit in?

Aren't they covered by NMW legislation?
Mistress Rose

I think this is a nasty piece of legislation in its entirity, and is aimed at cutting costs rather than helping people get into reasonably paid work.

The comments made on large companies paying minimum wage rather than a living wage are most important, as is the legislation that allows some of these same large companies to take people for 'work experience' and not give them any training, but get them doing routine work while not paying them.

I am glad that our company has got beyond that stage, but we are trying to get it build up slowly, and for the first few years, if any of us had been on those benefits, we would have had to shut and 2 people be looking for work.
JohnB

The comments made on large companies paying minimum wage rather than a living wage are most important, as is the legislation that allows some of these same large companies to take people for 'work experience' and not give them any training, but get them doing routine work while not paying them.
Of course if the minimum wage is raised, that makes it eve worse for small businesses struggling with the Universal Credit.
Rob R

The comments made on large companies paying minimum wage rather than a living wage are most important, as is the legislation that allows some of these same large companies to take people for 'work experience' and not give them any training, but get them doing routine work while not paying them.
Of course if the minimum wage is raised, that makes it eve worse for small businesses struggling with the Universal Credit.

And for large businesses struggling with wages.
Hairyloon

You report your income for that month, less any expenses you have paid out that month. The remainder will be treated as your 'income'. You cannot carry forward any business revenue, even if you have regular, foreseeable expenditure coming up in the future.
Can you not fudge it with some creative accounting?
Separate yourself from the business (or create a separate business on paper) and have one loan money to the other.
Loan repayments are presumably classed as expenses.
JohnB

Loan repayments are presumably classed as expenses.
Not according to the article: "Repayment of capital or interest on a loan is not a permitted expense".
Hairyloon

Loan repayments are presumably classed as expenses.
Not according to the article: "Repayment of capital or interest on a loan is not a permitted expense".
Well that is just silly then... never mind, we will just have to be a touch more creative...
Rob R

Loan repayments are presumably classed as expenses.
Not according to the article: "Repayment of capital or interest on a loan is not a permitted expense".
Well that is just silly then... never mind, we will just have to be a touch more creative...

Or disruptive. They've barely started the trial yet, never mind set the process in stone. They can only manage with the resources they have, which isn't a lot.
Hairyloon

It is supposed to come into force on the 29th. Rob R

Only for new claimants in the 'pathfinder' trial in the North-West. They're starting off with a tiny sample size so that they can administer it manually should the systems fail, as they did at the RPA when they brought in Single Farm Payments ten years ago. john of wessex

The 'pathfinders' also is basically for unemployed single people with no housing costs............ Rob R

The 'pathfinders' also is basically for unemployed single people with no housing costs............

Exactly. If it works when it goes live in October, it'll be a miracle (and they know it).
Jamanda

Who are "they"? Rob R

The people who are faced with the task of implementing it, civil servants & ministers. john of wessex

Funnily enough on another site I came across a posting from someone who was seconded to work on Universal Credit.

I wont quote it to protect his identity, but he basically says that theres no way on gods earth it will be ready in October
Rob R

Yes, I don't think they'd have given themselves until 2017 if they thought it could be ready that quickly. john of wessex

I dont think it will be complete evem by 2017 gray_b

I have only just caught up with this hot topic.

But presumably we (self employed) will have to run 2 separate accounts books, one for HMRC and one for UC.

Typically van mileage for UC will only be a flat rate, but with HMRC its down as on receipts.

With my business which is very much linked to the weather, I can earn virtually nothing from November to March, but then make hay whilst the sun shines for the rest of the year. So they will say its not a viable business over the winter months ??

This is going to be a nightmare Sad
Rob R

With my business which is very much linked to the weather, I can earn virtually nothing from November to March, but then make hay whilst the sun shines for the rest of the year. So they will say its not a viable business over the winter months ??

Just 'invest' the hay during the summer months into something that can be sold, preferably at a profit, during the winter months (hay is a good one, actually).
john of wessex

E-mail to my MP, David Heath - Secretary of State for Agriculture

Dear Mr Heath,


I have been looking at this summary of Universal Credit and what it means for the self employed


http://www.permaculturehouseintotnes.co.uk/1/post/2013/03/universal-credit-and-the-self-employed.html


I am advised by those who have worked on this aspect of Universal Credit that it is accurate.


As Secretary of State for Agriculture, I would be interested to know what you opinions are on the effect that it is likley to have on seasonal businesses such as farming, tourism and related areas.


There is a clear intention to take benefits away from those who are not in gainful self employment. I note however that there are a large number of profitable businesses eg Retail (Top Shop, Amazon, Starbucks, Tesco's) who seem to make reasonable profits, avoid Tax but not pay their staff a living wage. If you are to withdraw benefits from self employed workers who do not make a reasonable income, should you not, by the same token be making profitable businesses pay their workers at a level that means they do not require state support.


As a taxpayer, I resent having my taxes used to support employees whose employers do not pay a living wage.


Please can you advise me if you propose to take any action on this.


Yours Sincerley
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