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Universal Credit and the Small Business Owner
By Rachel J Toussaint

Universal Credit is the brainchild of the UK Coalition government and is part of the biggest overhaul of the benefits system in the post World War II era.

According to the UK government it is a policy that will be "Simplifying the welfare system and making sure work pays"

The aim of Universal Credit is to act as a One Stop Shop for individuals and families eligible for financial assistance from the government. It will bring under one umbrella the following current benefits entitlements:

Income based Jobseekers allowance

Income related employment and support allowance

Income Support

Child tax credit

Working tax credit

Housing benefit

How Universal Credit differs from the system currently in place.

Firstly, Universal Credit will be made available to those working or not working. This, it is supposed, will enable people to move in and out of work more smoothly. So, for example, you will not need to stop a working tax credit claim and start a new Jobseekers Allowance claim. Clearly for some, particularly those who were self-employed, it takes so long to sort out a claim, that they feel once they get on benefits they are going to stay there!

Presently, self-employed people eligible for financial assistance mostly depend on working tax credit and child tax credit if they have children. So under Universal Credit these two benefits will be merged into one along with any other payments from the list above.

This all seems like a seamless and forward looking transition. So, Why all the fuss from various groups against these changes?

Well, a proper look at Universal Credit will reveal that it inherently punishes a business owner if their income falls below a "minimum income floor". Effectively, an adviser at the Department of Work (DWP) and Pensions will decide what a business in the same category should be turning over. This will then be used to set a minimum income level for the Claimant's business.

At a minimum, you're business will be expected to provide you with an income which is equivalent to working 35 hours a week at the National Minimum Wage. If your income falls below the "minimum income floor" level, Universal Credit will not compensate the difference.

Self -employed claimants are required to report their income on a monthly basis.

All this means that you could end up receiving less money being self-employed than you would if you were actually unemployed.

The additional work this will create for business owners and the administrative nightmare brewing at the DWP at this point, can only be imagined.

The logic behind these reforms is to "encourage" small businesses to improve their financial performance. In my view, this is oversimplifying how and why small businesses exist and the reality of small businesses achieving peak performance in the present economic climate.

As a small business owner and a parent, I know that one of the main reasons many small business owners decide to set up on their own is to be able to fulfill their family obligations whilst earning their livelihood. There are many reasons why a small business may experience a dip in income. Parents who own "solo businesses" may work reduced hours due to maternity or paternity leave or any number of family and personal commitments.

This will naturally have an effect on the turnover of the business. They are still, however, working and running a viable business which could sustain itself now with financial assistance, and can be self-sustaining in the future when current obstacles no longer exist.

Start-up businesses will be given twelve months to achieve the "minimum income level" and existing businesses will be given six months to achieve this figure.

Universal Credit has already been rolled out in certain parts of the North-West of England and will be rolled out throughout the UK from October 2013. Universal Credit is expected to have reached all parts of the UK by the end of 2017.

What are the Options

- You can decide to set up a business anyway and hope that you meet the "minimum income level" within the twelve months. You will be allowed a new start up period every five years.

- You can continue in your existing business and hope that you meet the "minimum income level" within six months.

- As there is no minimum or maximum numbers of hours that must be worked (the present 16 hours requirement will no longer apply). You can run your business for less hours and supplement your income with paid employment until your business income is sufficient. This will take longer for you to build your business. Also it will present more challenges - particularly as typical recipients of the now tax credits are likely to be families with young children - so time won't be their best friend at this stage in their lives!

It's simply too early for us to speculate just how badly these changes are likely to affect small business owners with families. But the future is not looking rosy.

We will have to wait for "from the ground" feedback from claimants already subject to the new Universal Credit system.

The jury is still very much out.

Rachel Toussaint is a UK Solicitor and a Consultant at Toussaints Solicitors, Birmingham. She specialises in Family law and immigration for families. She has a particular interest in empowering women to use legal strategies to enhance their lives. She shares top tips and solutions for parents returning to work after a career break. She can be contacted for speaking engagements, advice or networking on 0121 523 5050.

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