THE IMPLEMENTATION of universal credit, which will replace the current tax credit system, could run into significant practical problems, the CIoT has warned.
Extra burdens on businesses, deadlines many will find impossible, and income calculations biased towards the Exchequer have all been identified as major stumbling blocks by the institute.
The credit is being piloted alongside the PAYE real-time information scheme, which is due to be rolled out nationally in April next year. It is hoped universal credit will provide relief for anyone looking for work or on a low income, and will function as a single monthly payment. It is due to replace the job seeker's allowance, employment and support allowance, income support, child tax credits, working tax credits and housing benefits.
The proposed requirement for the self-employed to report transactions on a monthly basis – within seven days of the month end if they are to qualify for universal credit – was described as "burdensome" by the CIoT.
Under the current tax credit system, eligibility can be judged annually, generally using the same records that are produced for a tax return, but universal credit requires the calculations to be done using a different method.
There will also be no recognition of cash payments in excess of receipts on a month-by-month basis, according to the institute. This could allow someone earning a huge amount in one month of the year and nothing for the rest of the year to claim universal credit for the remaining 11 months. Equally, it would mean someone with £5,000 of expenditure in one month and sales of £5,000 the next would only be entitled for the credit for one of those months.
Additionally, the proposed requirement for employers to report payments to employees on or before the time of payment, irrespective of the time or location of payment, has raised concerns in several business sectors, such as hospitality and agriculture.
Andrew Gotch, chairman of the CIOT's Owner Managed Business sub-committee, said: "As a principle, we strongly agree with simplicity in administration and can see some significant benefits from sweeping away the complexities of the current benefit and tax credit system, and making it more straightforward for people to claim the financial support to which they are entitled.
"The responsibilities being placed on self-employed people under the proposals are particularly onerous. An annual tax return will be supplemented not only with a requirement to report transactions monthly, but to do so using a different method of calculation and even a different set of criteria for determining self-employment – and all within seven days."
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