Universal Credit V Tax Credits

By Rachel Coates, Tax Manager

What’s the difference?

A new benefit – Universal Credit – is on it’s way and it is set to replace both Working Tax Credit and Child Tax Credit as well as housing benefit, income support, income based job seekers allowance and income related employment and support allowance.

Universal Credit is being rolled-out in stages throughout the UK and it has already been introduced in some postcode areas within Allerdale but yet to be introduced in other areas such as Eden.  We do know that by 2019 most existing tax credits claimants will be moved across onto the new benefit and tax credits payments will cease.

Many people are presently unaware of how this change will affect them and in a lot of cases this will hit the self-employed particularly hard. A significant number may have regularly been receiving hundreds or even thousands of pounds each year in tax credits since they were first introduced in 2003.

Under the current tax credits system, a self employed couple with two children and no childcare costs, having income of £10,000 would receive £9,423 in tax credits from the government for 2016/17.  But under the new universal credit system the payments they are likely to receive will be far lower.

One of the biggest issues of the new system is that payments will be calculated using a new “minimum income floor” which assumes that everyone earns a wage equivalent to the national minimum wage.  Many self employed people will know that there are often months in the year that they make a loss, particularly in industries such as farming, where a profit is only generated in the months that they sell stock or receive their subsidies.  The new system does not give any relief for these losses.

It is also going to be increasingly difficult to make a claim for universal credit.  At present tax credits claimants need to provide their annual income figures twice each year before 31 July and 31 January.  Under the new system claimants will be required to submit monthly income and expenditure accounts otherwise their universal credit claim will cease.  This is going to be much more time consuming and a real burden for people.

A change in family circumstances that would normally need to be reported to the tax credits office could mean that the tax credits claimant is moved onto universal credits sooner than 2019.

For advice on how any of this could impact on you please contact Rachel Coates at Dodd & Co on 01768 864466. 

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Dec 12

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