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Self-Employed-Tax Credit Scam

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Somebody mentioned on another thread that "mass self-employed-tax credit scam ........ the only game in town at the moment."

Can anybody explain what this is and how it works? Is it really a scam?

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It's something along the lines of.

If you are unemployed you are entitled to job seekers allowance, which is set at a certain level.

If you are employed, do a certain number of hours and have a certain "need" you can get tax credits, which are worth much more than JSA.

But being employed and doing a certain number of hours is hard for a number of reasons.

So the scam is to become "self employed", suddenly you are classed as employed for benefits purposes and are entitled to tax credits, and it doesn't matter how little you earn or what you do.

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i think you need kids to make a go of it though.

Im entitled to diddly.

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It's something along the lines of.

If you are unemployed you are entitled to job seekers allowance, which is set at a certain level.

If you are employed, do a certain number of hours and have a certain "need" you can get tax credits, which are worth much more than JSA.

But being employed and doing a certain number of hours is hard for a number of reasons.

So the scam is to become "self employed", suddenly you are classed as employed for benefits purposes and are entitled to tax credits, and it doesn't matter how little you earn or what you do.

Yes but presumably if you don't actually earn anything you cant get tax credits (since youve paid no tax to claim back).

I guess you can game the system though by adjusting the hours you claim to work to maximise the tax refund.

Edited by goldbug9999

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Tax credits aren't anything to do with getting your tax back. The name is part of the con.

not your tax...someone elses.

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It's something along the lines of.

If you are unemployed you are entitled to job seekers allowance, which is set at a certain level.

If you are employed, do a certain number of hours and have a certain "need" you can get tax credits, which are worth much more than JSA.

But being employed and doing a certain number of hours is hard for a number of reasons.

So the scam is to become "self employed", suddenly you are classed as employed for benefits purposes and are entitled to tax credits, and it doesn't matter how little you earn or what you do.

Tax credits don't pay out as much as JSA. Nor are you automatically entitled to other benefits such as health and housing. You would need to apply. You are worse off money wise, but should be earning something... Of course, the main benefit is being free of the JC, and being able to try out things.

However, mistakes can be made and people can and do get caught out by not meeting the criteria and money can be clawed back.

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Tax credits don't pay out as much as JSA. Nor are you automatically entitled to other benefits such as health and housing. You would need to apply. You are worse off money wise, but should be earning something... Of course, the main benefit is being free of the JC, and being able to try out things.

However, mistakes can be made and people can and do get caught out by not meeting the criteria and money can be clawed back.

I just went to the Tax credit calculator and put in details for a single mother, two kids, one at primary school and one under the age of 5, self employed and income of £0. My tax credit entitlement is more than £15k!!!

Are you sure tax credits don't pay out as much as JSA?

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This isn't a scam and this looks like another one of those Tory troll posts going around to demonize anyone claiming 'benefits' especially if those benefits go to the 'lower orders' and not landed plutocrats like them.

Working Tax Credits for a singleton are about £20 a week less than JSA. You are entitled to Housing Benefit if you are the bonded slave to a rentier under an AST or pay rent. You might have to pay NI, or get some exemption if earnings are low.

I also think that as you are classed as employed, you loose all your passported benefits but I might be wrong about that (you might get them by waiving your tax credit entitlement letter from HMRC at someone).

Once or if earnings take off you have the same 'benefits trap' problem, so if you earn more than about £20 a week you start to loose money so the problem is that you have to go from £20 a week to earning £200 a week. A Citizens Income would be far better.

Earning an extra £20 a week is quite easy, earning £200 a week, through self employment with low skills and poorly capitalised, is not so easy.

Edited by aSecureTenant

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One of my friends is a lone parent with two kids at primary school. Has been on JSA since I've known her. In the last couple of months she was heavily encouraged by the job centre people to go onto this self-employed thing ("enterprise allowance or some such name?"). She says she is approx £220 a month better off and doesn't have to go to the job centre every fortnight anymore and prove that she's been applying for jobs. She said they've pushed loads of people onto it recently................something to do with an election coming up you know,

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One of my friends is a lone parent with two kids at primary school. Has been on JSA since I've known her. In the last couple of months she was heavily encouraged by the job centre people to go onto this self-employed thing ("enterprise allowance or some such name?"). She says she is approx £220 a month better off and doesn't have to go to the job centre every fortnight anymore and prove that she's been applying for jobs. She said they've pushed loads of people onto it recently................something to do with an election coming up you know,

Enterprise allowance isn't tax credits. Its on top of tax credits, and is for about six months or so. Its not counted for tax purposes so won't effect tax credits or means tested benefits like HB. Its been around for some time.

If 1 in 100 actually gets a business of the ground, then good for them! Sometimes we are too cynical on this forum especially as many have the odds stacked against them in achieving success. Far better than sending them to a workfare provider.

You still need to visit the Jobcentre to claim EA but not as often. You will need to submit a business plan, attend courses provided by an EA provider (here in West Yorkshire its Chamber of Commerce). You will have to attend regular meetings with your appointed business mentor for progress updates and so on.

I was asked if I wanted to be a business mentor, its an unpaid volunteer position, and you are not allowed to promote your agenda or services.

Edited by aSecureTenant

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This isn't a scam and this looks like another one of those Tory troll posts going around to demonize anyone claiming 'benefits' especially if those benefits go to the 'lower orders' and not landed plutocrats like them.

Working Tax Credits for a singleton are about £20 a week less than JSA. You are entitled to Housing Benefit if you are the bonded slave to a rentier under an AST or pay rent. You might have to pay NI, or get some exemption if earnings are low.

I also think that as you are classed as employed, you loose all your passported benefits but I might be wrong about that (you might get them by waiving your tax credit entitlement letter from HMRC at someone).

Once or if earnings take off you have the same 'benefits trap' problem, so if you earn more than about £20 a week you start to loose money so the problem is that you have to go from £20 a week to earning £200 a week. A Citizens Income would be far better.

Earning an extra £20 a week is quite easy, earning £200 a week, through self employment with low skills and poorly capitalised, is not so easy.

The government pays advisers to advise the claimant on how to avoid most of the above concerning stepping over the threshold for WTC a mate has been doing this for three years or so now (handyman /painting/gardening sort of thing) most of the work is cash payment so it`s all about balancing the books, he has an adviser from the jobcentre/contractor to make sure hes ok on that front

It`s all about the unemployment numbers, my guess would be the rug will be pulled from under them IF Gidiot&co retain power next year

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If 1 in 100 actually gets a business of the ground, then good for them! Sometimes we are too cynical on this forum especially as many have the odds stacked against them in achieving success. Far better than sending them to a workfare provider.

Thats the way i see it , some may actually succeed ,but what i don't like is the fact it`s making the unemployment figures look far better than they are

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Thats the way i see it , some may actually succeed ,but what i don't like is the fact it`s making the unemployment figures look far better than they are

I don't know if this is still the case, but you used to have to be classed long term unemployed to get Enterprise Allowance. I know some mentors were a bit unhappy with this. They thought Enterprise Allowance should catch people early before they become disillusioned and give up altogether.

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We've been through this, and I have given the example of if I come back to the UK for six months in 2014-15, it makes more sense for me to go self employed, work a 30 hours week for less than 10k and get the tax credits than go for a high powered stressful job that paid 100k but left me with <50k after travel costs and tax.

Thinking about it, I could actually go self employed and have my wife set up a company to hire me out as a consultant on a pittance. keep all the profits in the company, she takes no divi's until we leave the UK again. Anyone object?

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This isn't a scam and this looks like another one of those Tory troll posts going around to demonize anyone claiming 'benefits' especially if those benefits go to the 'lower orders' and not landed plutocrats like them.

I don't know if scam is the right word, but it's certainly dubious. You can claim tax credits with a million quid worth of savings, for example.

It changes people's behaviour to hit the arbitrary tax credit thresholds, the goal is to hit the tax credit target rather than to do whatever you can to provide for your family. Through employment it provides a large amount of low-paid unmotivated labour, who just want to do their hours and then collect the real prize - not their salary, but the government's tax credits.

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I have been in this situation and still am although to a lesser degree.

The point was why would I pay myself more and then lose the tax credit I have.

With a greater income I would pay more tax and NI and lose the benefits.

By paying myself less I pay less tax and NI and receive tax credit which makes much of the difference up. I also have more money in the business to develop it.

My business pays tax just as I do.

I also live on premises so this is a declared benefit and I pay tax on this too.

I may move off premises soon and so my effective income will be less and my tax credits will increase.

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Enterprise allowance isn't tax credits. Its on top of tax credits, and is for about six months or so. Its not counted for tax purposes so won't effect tax credits or means tested benefits like HB. Its been around for some time.

If 1 in 100 actually gets a business of the ground, then good for them! Sometimes we are too cynical on this forum especially as many have the odds stacked against them in achieving success. Far better than sending them to a workfare provider.

You still need to visit the Jobcentre to claim EA but not as often. You will need to submit a business plan, attend courses provided by an EA provider (here in West Yorkshire its Chamber of Commerce). You will have to attend regular meetings with your appointed business mentor for progress updates and so on.

I used Enterprise allowance in the 90's and it worked for me- it gave me the freedom to tout my portfolio around and pick up the small jobs that eventually led to getting an agent and becoming self supporting- but I did at least have a skill to sell- for those without marketable skills or capital I doubt it would be much use.

All it does really is cancel the benefits trap for a short while creating a 'window' for people who can then take on the small jobs that could lead to better things.

But it does provide at least some evidence that a citizens income could work to some extent by allowing people to start 'micro' ventures that may in time lead to a viable income.

The joke that is IDS talks the talk about ending welfare dependency while at the same time constructing a system so draconian that anyone dependent on it become far more risk averse than they were before. If you want people to take the risk of self employment don't set up a system so byzantine and punitive that it amplifies that risk- do the opposite.

Enterprise Allowance is a rare example of the system doing something right- limited as it is.

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just out of interest I masqueraded as a 40 year old no kids no savings self employed for 30 hours per week

the results

alleged earnings of £6500 - get tax credits of 2586.88 (would get the same amount if earnings 0)

this adds up to less than the personal allowance so it is NOT a tax credit at all.

interesting that IF you were seriously working 30 hours a week SE and earned that amount that is about minimum wage.

but if your only income (you earned 0 from SE) was £2586 tax credits per annum this is indeed less than JSA - only £50 pw

BUT I assume you would get some kind of top-up and someone would suggest to you nicely that working 30 hours a week and earning zilch is a waste of time :unsure:

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Yes but presumably if you don't actually earn anything you cant get tax credits (since youve paid no tax to claim back).

I guess you can game the system though by adjusting the hours you claim to work to maximise the tax refund.

Speechless

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I thought the idea was not to 'scam' the system as such but just to avoid the Job Centre people being on your case all the time about applying for jobs if you get JSA. If you just do the SE/WTC thing you don't have to jump through the hoops, potentially get 'sanctioned', etc, although you get less money.

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Whether or not this is good value for the taxpayer would depend on the person and the business really. Looking for clients and looking for a job are pretty similar activities. For someone with experience and professional skills, but who finds themselves unemployed, it's probably better for the country that they have a go at starting a business rather than waste their experience stacking shelves on a workfare scheme.

I'm self employed and surviving on tax credits at the moment. It's been just about a year and since my revenues have been low - just one enterprise sale for a prototype - and my set up costs have exceeded that, my income for tax and benefit purposes is effectively zero, so I also get housing benefit and council tax benefit. Overall, as others have said, it works out about £20 less than if I was in JSA.

The great benefit is that it has given me time to properly research my business, speak to potential customers, write the plan, recruit a team and set about raising money. If I raise the round, which is looking promising so far, then 1 years National Insurance on my teams wages alone will more than cover every penny of tax credits, housing benefit and council tax benefit I've received.

Looking at the big picture, what you "lose" to people gaming the system, you more than gain back by enabling new businesses to get off the ground.

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i think you need kids to make a go of it though.

Im entitled to diddly.

Yep only worth it with children. With 2 or more then children tax credits are very generous. It is also valid to EU migrants on day one, along with many non EU on some visas without any prior tax contributions. It is one of the main things that makes the UK very attractive. It is administred by HMRC not the Department for Work and Pensions, so it is often not included as a benefit in reports/documents/articles etc (though is more generous than most benefits) and so when reports come out saying migrants do not claim as much in benefits they are excluding tax credits.

It has a place but needs reform. I'd limit it for parents which is where the bulk of money is going, and also make it so people must have contributed first before claiming.

Edited by sf-02

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The difference between the employed and the self-employed is an entirely ideological one.

It's easy to see that this is the case, by looking at the number of people doing the exact same job, for more or less the same income, where some choose to be employed and some choose to be self-employed.

What we should care about is only the number of people unable to support themselves without government help.

Since the government is trying to attach a meaning to this entirely arbitrary distinction, it looks very much like an attempt to game the statistics.

Actually, I don't think it is. As I said, it is ideological, and I think they believe their own ********.

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