Five years ago, I was writing about the unsuitability of the Universal Credit scheme for the circumstances of self-employed people. Lots of self-employment is fictitious – a fraud by employers – but there’s real self-employment, too. Income from genuine self-employment tends to be lumpy – unevenly distributed, and slow to match either with costs or the time when the work is actually done. In the short term, it can be difficult to tell what one’s income actually is. I’ve just had a quick look at my own accounts – fortunately, I don’t have to rely on Universal Credit. Last year I received self-employed income in five months, got nothing in five more, and paid out in two others. That last bit is not at all unusual – tax is usually due in January and July.
We are shortly due to have another change in the way that self-employed income is calculated. The system began with the idea that everyone would have their benefit calculated in ‘real time’, and then, for self-employed people, that they would have their circumstances calculated monthly on the basis of a notional “minimum income floor”, even if they had none – or if, like me, their costs happen to exceed their income in that month. The new system will take larger income payments and distribute any nominal surplus to later months. What it won’t do, as far as I can tell, is to take proper account of losses and liabilities, because the minimum income floor still applies to loss-making months. Nor will it be geared to the tax system, because while HMRC has started routinely taking six-monthly payments on account, self-employed people’s liability to tax still typically gets settled well after the event.