What’s Universal Credit?
Universal Credit is a new system being introduced to replace a number of existing benefits, including Working Tax Credit, Child Tax Credit and Housing Benefit. It is currently being phased in (starting in April 2013) and is expected to have fully replaced the other systems by 2018.
How will Universal Credit be calculated?
That’s not yet completely clear but, like the Benefits it is replacing, there will be a number of fixed allowances. The allowances to which a person (or couple) will be entitled will vary according to circumstances and the aggregate of these allowances will be reduced by 65p for every £1 that the person’s (or couple’s) income exceeds a certain threshold (which will also vary according to circumstances).
No Universal Credit will be payable where a person or couple have capital of more than £16,000.
How will income be calculated for Universal Credit?
Your income for Universal Credit purposes will be your total income for income tax purposes less any tax and NI and less any pension contributions that you pay.
There is also a more complicated method of working out income from self-employment that doesn’t rely (and differs greatly from) the calculation for income tax purposes. Many commentators on the draft regulations have indicated that they don’t consider the calculation fair for the self-employed, so the calculation may yet change.
For company owner-managers though, any profits earned by the company but not withdrawn from it are not included as income. Additionally, the draft regulations do not seem to include dividends as income.
Are there any income deprivation rules for Universal Credit?
Yes.
These are similar to those that apply for Tax Credits, Council Tax Benefit and Housing Benefit.
As the current regulations stand though, company owner-managers can take dividends (not included as income) and avoid depriving themselves of income. This flies in the face of the income deprivation rules of the Benefits being replaced so don’t be surprised if this eventually changes.
Watch this space!
Paul
