Universal Credit System and Income Tax
Universal Credit is a new system introduced by the government in order to ensure greater fairness to the welfare system. The early introduction of Universal Credit has begun in the Greater Manchester and Cheshire areas whereas it will be operational nationwide in October this year. Universal Credit is more convenient compared to old system and provides a single monthly payment if you are on a low income or out of work. The system will also be beneficial for both self employed and employers. Between April 2013 and the end of 2017, Universal Credit will replace:
- Income-based Jobseeker’s Allowance
- Income-based Employment and Support Allowance
- Income Support
- Working Tax Credit
- Child Tax Credit
- Child Tax Credit
Why Work is more advantageous under Universal Credit System?
Unlike the current system, your benefits under Universal Credit won’t suddenly be taken away because you have started work. The payment under Universal Credit will gradually be reduced as your take home pay increases. Additionally, Universal Credit system gives you freedom to work extra hours whether in a full or Part-time job. By combining in work and out of work benefits Universal Credit removes the financial risk of taking-up a job.
Universal Credit is paid monthly, directly into the account you have chosen. Separate rules have been devised for couples and adults living in the same house who claim Universal Credit.
Universal Credit and employers
Universal Credit is introducing Real Time Information (RTI) Pay as You Earn (PAYE) to help employers manage their Payrolls. Your employer shall report to HMRC the changes in your work hours. Consequently, Universal Credit will adjust payments according to information provided. This gives the employer and employee more work flexibility and removes the risk of the benefits being stopped. Many employers have already started to use RTI PAYE and many other are taking advice from the firms like Care Accountancy to get full benefits of the new system.
Universal Credit and self employed
There are several benefits that a self employed can claim with the Universal Credit. Universal Credit replaces these benefits and will support self employed people in the best way to ensure they become financially independent.
Universal Credit provides a 12 month start-up period for businesses less than 12 months old. During this 12 month period, the minimum income floor will not apply so that an entrepreneur can solely focus on the business. Moreover, entrepreneur will receive payment from Universal Credit like any other employee. However, the reporting requirements are strict and failing to report earnings to Universal Credit in 7 days will result in Universal Credit payment being suspended.
Under the new system self employed will have to prove its eligibility in order to get benefits from Universal Credit System. In order to completely understand the system you can contact Care Accountancy for the advice on the following address:
188a Roundhay Road, Leeds, LS8 5PL
T: 0113 248 8181 / 248 8182