The government has trumpeted the huge rise in self-employment as an example of entrepreneurial resilience in the face of adversity. Cynics says people have been forced out of work to eke out a living and becoming self-employed suits the government as it masks the true jobs figures. Be that as it may, the 4.2m self-employed and in particular the 219,000 newbies are about to get the rudest awakening of their lives and one which will push many back on to employment support.

For hidden deep within the depths of the Iain Duncan-Smith’s hefty Universal Credit (UC) reforms document are a few paragraphs which are going to impact severely on the way the self-employed do business – and may force them out of the workplace.

Under UC employers via the PAYE system will have to provide monthly figures to HMRC and DWP so that tax credit payments can be calculated on an ongoing basis. It has also been decided that the self-employed and sole traders will also have to report earnings every month – if invoices are unpaid, tough luck. They will also have to earn at least the minimum wage for hours worked or lose benefits. Many people take low paid jobs just to keep ticking over or in the hope of further better paid work That cuts no ice under UC. Even more than that, they will have to report that they are avialable for work even if trying to build up a business.

Currently people report on an annual basis and receive tax credits accordingly. Reporting on a monthly basis will make it impossible for many as well as incredibly bureaucratic.

Anthony Thomas, chairman of the Low Income Tax Reform Group, said: “The government says that Universal Credit will ensure work always pays. That will not be the case for many self-employed. There will be a disincentive to taking up work leaving many trapped on welfare.”

Inevitably it will also be a barrier to someone starting up a business although newcomers will have a year’s grace.

Mr Thomas added: “:

“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.”


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