Universal Credit to hit small businesses and start-ups, MPs warn

Small businesses, the self-employed and start-up companies could all struggle with major upcoming changes to the welfare and benefit system and the way PAYE data is reported, a report by MPs has warned.

Under the new Real Time Information (RTI) system, most employers will need to report their employees' PAYE payments - such as tax and NICs - on or before each pay day, as opposed to at the end of each tax year. RTI will be crucial to the Government's new Universal Credit programme, which will calculate welfare claims and tax credits according to real time earnings.

According to the report published by the Work and Pensions Select Committee, the additional administration involved in RTI and Universal Credit could impose a 'significant and unnecessary burden on the self-employed', while ready access to the internet may cause problems for others.

The Committee also argue that the proposed minimum income rules for the Universal Credit could act as a disincentive to entrepreneurship.

Although a pilot of the Universal Credit system will begin in the north west of England in April 2013, MPs are calling for the 'ambitious' full national roll-out due in October 2013 to be delayed.

Commenting on the report, Anthony Thomas, chairman of the Low Incomes Tax Reform Group (LITRG) said there was a serious 'lack of realism about the extent of digital exclusion among the business community.'

"There are also far-reaching consequences for claimants and small businesses alike of erroneous data creeping into the systems, which could seriously impact their operation in practice."

According to the LITRG, the requirement of RTI to report employee earnings on or before the date of payment was unrealistic for many small businesses, particularly where employees are paid on an ad-hoc basis.

"Self-employed claimants will face substantially greater burdens to starting and growing their own business than now, which is worrying," he added.

"Those requiring some support from the welfare system to get a self-employment business going will need to prepare accounts for the DWP each month on a completely different basis from those it has to prepare for HMRC once a year. This will impose extra bureaucratic burdens and material additional time and financial cost, which are likely to deter claimants from starting up and building their own businesses. This is not the right way to go about encouraging new business start-ups."