Universal Credit

Introduced in 2013, Universal Credit aims to reform the benefits system by replacing existing income-related benefits, namely:

  • Housing Benefit
  • Income Support
  • Child Tax Credits
  • Working Tax Credits
  • Income-based Jobseeker’s Allowance (JSA)
  • Income-related employment and support allowance (ESA)

Under this scheme, recipients who are out of work or on a low income will receive a single monthly payment to assist with living costs.

The objective of Universal Credit is to simplify the welfare system, help get people back into work, reduce in-work poverty and help detect fraud and error. However, it isn’t without controversy. The Government has made a vague promise that existing tax credit recipients will not lose out through Universal Credit, and the Secretary of State for Work and Pensions announced that the Department of Work and Pensions (DWP) had succeeded in helping 3.4 million people find employment since 2010.

But other institutions are less optimistic. The Institute of Chartered Accountants in England and Wales (ICAEW) said that ‘by and large, the new system will be less generous to claimants than tax credits’.

What’s the difference between Universal Credit and the existing Tax Credit system?

There are some key differences between the systems:

  • Claimants will now receive a single monthly payment
  • More people will be able to manage their claim online
  • It will be available to those who are in work but have a low income

The amount of the single monthly payment will depend on an individual’s circumstances. It is made up of a single monthly allowance, supplemented by additional elements for childcare, limited capability for work, housing and carers.

The single monthly payment is supposedly designed to reflect the salary system of the vast majority of employed people receiving wages monthly. According to the government, Universal Credit will thus encourage claimants to take more responsibility for their finances and also prepare people for the transition into work.

What do you need to do if you currently receive Tax Credits?

The short answer is nothing. HMRC has made it clear that the Tax Credit Office will contact those affected by the changes. At present, there are more than one million people on universal credit and the government’s plan is to roll it out for almost seven million people by 2023. To find out if you’re eligible to receive Universal Credit, see this step-by-step guide on the gov.uk site.

Will Universal Credit affect child maintenance payments?

Universal Credit will not replace Child Benefit, which recipients will still receive in addition to Universal Credit. This will also not affect the amount of Universal Credit that claimants are entitled to. In addition, Universal Credit will not affect Bereavement Allowance, Carers Allowance, Disability Living Allowance, Maternity Allowance, among others.

Is Universal Credit taxable?

Universal Credit is a tax-free state benefit, which means the monthly payments are not considered taxable income. While other benefits may be taxable, the government supports Universal Credit recipients through this state-benefits system.

For more information, the DWP has produced an FAQ document which is useful. Alternatively, you can contact our tax accountants to if you have any questions.

Published on 09 Jan 2013 and updated on 06 Feb 2019, this blog is intended to provide information of general interest about current business/ accounting issues. It should not replace professional advice tailored to your specific circumstances.


HMRC tax investigation

HMRC Legal Powers

HMRC tax investigationMany people remain unaware that in an age where data protection and privacy are big issues, such rights do not always exist when it comes to tax affairs.

In this area, HMRC has very wide powers to conduct surveillance and intrusively snoop on suspected tax dodgers.

Most would agree that tax evasion is a very serious issue, which should be investigated by HMRC if there’s a suspicion of fraud and criminal activity. But not everyone agrees when HMRC uses its power to collect more tax from innocent workers in order to minimise its tax gap, raising concerns on privacy infringement.

The power of HMRC comes from Schedule 36 of the Finance Act 2008, which allows HMRC to obtain information and documents from taxpayers and gives them the power to inspect businesses. According to HMRC, their criminal investigation powers allow them to:

  • Apply for orders requiring information to be produced
  • Apply for search warrants
  • Make arrests
  • Search suspects and premises following arrest

In July 2018, HMRC published a consultation proposing reforms to the existing legislation. Among other suggestions, they proposed to remove tribunal approval for third-party notices and create separate rules for third-party information requests.

While HMRC claims the reforms are meant to cut costs and improve efficiency, many businesses and taxpayers are concerned that this may remove some of the necessary checks and balances in place, which are particularly important when the requests relate to banking information.

How far can HMRC go in investigating?

While future changes are yet to be determined, at present, HMRC has the following powers to catch tax dodgers:

Their powers include:

  • The ability to track a suspected tax evader’s web browsing.
  • The ability to intercept and read private emails or eavesdrop on telephone calls, only permitted with a warrant.
  • The potential to bug an office, house or car.
  • The power to access credit reference information in order to compare alleged levels of income, information and documents given to credit companies and spending habits which may not match the information given in tax returns.
  • The right to visit third parties.
  • The ability to pass on any other relevant information regarding tax issues to other arms of the organisation.

What HMRC are not authorised to do

Be aware of your rights:

  • HMRC cannot force entry or physically search by hand, they can only inspect by eye.
  • They cannot make an unannounced visit without it being authorised by a senior officer.
  • They cannot visit domestic premises.
  • They cannot compel a taxpayer to answer questions.
  • They must make it clear why a taxpayer is being investigated. They cannot investigate any other matter that they haven’t provided notice about.

While HMRC officers have clear restrictions under Schedule 36, it has also been disputed that these officers can take advantage if a taxpayer voluntarily waives their rights.

Tax investigations

If you’re being investigated by HMRC, contact our experienced team of accountants and tax advisors today. Our tax investigations services include:

  • Liaising with the local tax office
  • Compliance reviews of PAYE and NI
  • Investigations of VAT issues

Get in touch today on 020 8108 0090 or contact us via our Online Form to arrange a complimentary, no obligation meeting.

This post was first published on 10 02 2013 and updated on 06 02 2019.

This blog is a general summary. It should not replace professional advice tailored to your specific circumstances.