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As the roll-out of Universal Credit continues, campaigners are warning that the system is not working for self-employed people on low and fluctuating incomes.

Both the Resolution Foundation and the Low Incomes Tax Reform Group (LITRG) have warned that self-employed people will be worse off under the Universal Credit (UC) system.

According to Huffington Post , the Universal Credit system introduces demands "so stringent some entrepreneurs are being told they may as well shut down their business and sign on to the dole, while others say strict rules have left them reliant on food banks and charity handouts".

The Federation of Small Businesses (FSB) told Huffington Post: "As it stands, Universal Credit poses a real threat to entrepreneurship in the UK."

A new report from the Low Incomes Tax Reform Group concludes that, without changes to UC, there is a "real risk that those thinking about starting out in self-employment will be dissuaded and those already in self-employment may be forced to give up".

The LITRG has proposed an alternative approach that it says would "preserve the current incentives for entrepreneurial endeavour, bring greater parity between the employed and self-employed and safeguard public finances against abuse".

Its key recommendations include:

  • Self-employed claimants with fluctuating income or profits should be given an option of averaging their income (and expenses) over a period up to one year;
  • The current one-year start-up period should be extended to two years;
  • Every Jobcentre office should have members of staff that have had specialist self-employment training with access to an expert team supported by HMRC;
  • Self-employed claimants should see a work coach at least once every 12 months to ensure compliance with the gainful self-employment test. All those passing the test should have access to business support from a trained Jobcentre adviser;
  • An anti-abuse provision should ensure people cannot manipulate their income to claim UC - to be applied to both employed and self-employed claimants, removing the need for the complex surplus earnings rules due to come into force from April 2018.
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