Key points of the new systems are as follows:
- Universal Credit is means tested and anyone with more than £16,000 savings is excluded.
- Self-employed claimants with fluctuating incomes are disadvantaged. This will include many farmers whose income is concentrated over a short period with livestock sales
and subsidy receipts.
- Universal Credit is based on ‘actual receipts’ minus ‘permitted expenses’. This is different from taxable profit.
- For a farm partnership member, the relevant amount of receipts and payments is the ‘amount attributable to their share in the partnership’. This may be problematic where profit allocations are agreed in arrears.
- No account is taken of stock. Income will be high in months when livestock is sold and low in months when livestock is purchased.
- Expenditure on plant and machinery can be deducted.
- Interest on business loans can be deducted, but only up to £41 per month.
- Car running expenses must be calculated on a mileage basis. This will require maintenance of a business mileage log.
- Information must be submitted to HMRC monthly.
- Bar the first year of claim, all claimants will be deemed to have received income equal to the national minimum wage each month – called the ‘Minimum Income Floor’
Because of the complexity, some current tax credit claimants may be deterred from claiming Universal Credit. For more information, please contact us on 01392 211 233.