Universal credit and related regulations

Comments from ACCA to the Social Security Advisory Committee, July 2012.

Executive summary

ACCA fully supports the stated aims of the Universal Credit. ACCA believes it is important that the programme operates effectively and efficiently from the start of the rollout process.

The introduction of Universal Credit has in turn driven the development and implementation of the most fundamental change to the PAYE system since its inception. The movement to real time reporting (RTI) is fundamental to delivering the full benefits of Universal Credits, and with that comes an obligation for all those reporting income other than under RTI to move to similar timescales for preparation and delivery of information to DWP.

As professional accountants our members will be expected to advise on the implications for their clients of the new system, and assist them in complying with their obligations. In many cases the client will be dependent upon their accountant for accurate collation and transmittal of the required information, in the same way as now.

ACCA has some concerns about the proposals both for PAYE reporting and reporting of income for those under the self-assessment regime. The anticipated regime for reporting of self-assessed income in particular has prompted comment from our members, and we have already expressed our support of the letter to Lord Freud, copied to the Chairman of SSAC, of 12 July 2012 from the Low Incomes Tax Reform Group.

ACCA would urge DWP and HMRC to work together on generating a realistic and uniform model for reporting of self-employment income to the authorities. The introduction of simplified tax reporting for small business at around the same time as the new benefits system should be seized upon as an opportunity to simplify contact with the authorities, and not be allowed to impose further unnecessary and confusing reporting requirements.

Universal Credit and RTI

One of the main attractions of the new system of Universal Credit is its responsiveness to changing circumstances. This is of course based upon improvements in the ability of DWP to collate and process information, the bulk of which is provided by HM Revenue & Customs. HMRC’s capability in this area has been built upon the introduction of new computer systems. The first major step forward was the NPS system for reconciling PAYE records across the country, replacing the previous regional computer systems. While there were teething problems with the rollout of NPS, and the process of aligning PAYE codes in the new system, HMRC are now in a position to process in days or hours information which, on paper, took months to reconcile manually.

Nonetheless, the processing can only ever be as accurate as the underlying information, and ACCA considers that there are still areas where the approach of DWP (and HMRC) needs fine tuning to provide the benefits of Universal Credit without imposing an undue administrative burden on employers.

ACCA is encouraged by the progress reports from HMRC on the trials of RTI. The experiences of large employers with highly automated payroll systems and dedicated internal staff with detailed knowledge of their own systems and HMRC’s requirements suggest that for many employees Universal Credit should be a relatively painless experience, at least from the perspective of information flow to DWP.

However, there are many thousands of employers in the UK whose payrolls include individuals paid less than the NICs threshold, or who employ staff on a casual or cash paid basis for irregular patterns of work. Currently these employers are able to run a single payroll monthly, and for smaller businesses this will often mean engaging the services of a bookkeeper or payroll agent who reconciles the information on a monthly basis to make a single return for the business. The requirement to make a report of income before payment for every employee would impose an impractical and unreasonable burden on these employers. It is vital however that they are in a position to make returns that will facilitate the operation of Universal Credit, since it is most likely that those who are forced to take casual work or employment under the NICs threshold will be those in receipt of Universal Credit.

We note the responses to queries published on 26 July in which DWP have alluded to possible issues for claimants if cash in hand payments are not reported for four to six weeks after distribution. We are unsure how this is a particular disadvantage given that a significant proportion of employers only run their payroll monthly anyway. The same delay will inevitably be built in where individuals work on an irregular basis for an employer who operates a monthly payroll and payment by bank transfer, for example external markers assessing students’ coursework. In these cases the receipt of income for the claimant is likely to be even further disconnected from the claim or payment of benefits.

It seems disproportionate to impose a new and significant administrative burden on some employers in order to remedy a perceived timing disadvantage to their employees which in other cases will remain unresolved. Conversely, allowing those employers with an irregular or non-standard payroll to make a single monthly submission would mirror the payment pattern of Universal Credit itself. It would allow them in many cases to broadly maintain existing patterns of reporting and processing, delivering the same benefits to claimants at significantly less cost than the proposal to impose strict RTI reporting in every case.


ACCA supports the efforts of DWP and HMRC to ensure that those in self-employment receive appropriate and accurate levels of benefit at the right time. The difficulties with the current process of income reporting for tax credits have been exacerbated by the low frequency of reporting. ACCA is concerned though that the timetable for self-employed reporting under Universal Credit goes too far in the opposite direction, and that the proposals to introduce another method of accounting for their results will compromise the effectiveness of the reforms.

ACCA recognises that there is a compromise to be made between responsiveness of the system for calculating self-employed benefits and the burden imposed upon those businesses in providing the information to underpin the calculations. Self-employed individuals who are in receipt of Universal Credit are not going to be in a position to engage regular professional assistance in preparing their books and records. Nor will they wish to devote any more time than is strictly necessary to non-profit making activities, and so while completing Universal Credit claims may be essential, the process must be as quick and simple as possible, imposing the minimum incremental burden on claimants.

For many small businesses, the proposed timetable for self-reporting will not be achievable. ACCA has received expressions of concern from members, for example, “I have many very small business clients and know, without a shadow of doubt, that they will be unable to comply with the monthly reporting required under Universal Credits.” ACCA advises all small businesses to keep accurate records, and to be sure that they have an accurate and ordered system for establishing which of their activities are generating the most profit, and which are unnecessarily costly. Keeping good records is fundamental to efficient and effective operation. But for many small businesses this is a struggle, and often through no fault of their own. Maintaining the books has to play second place to earning income, and at busy periods may have to be put off until time is available to look at it.

Businesses which rely on third parties, such as banks, for their information may simply not have the details at all within 7 days of the month end, let alone in sufficient time for them to be able to prepare and submit a return to DWP. A significant proportion of sole traders still rely on paper statements from their banks, either through preference or because technological difficulties (poor or non-existent broadband for example) rule out the use of internet banking. For claimants in this position it will simply not be possible to make an accurate return within the timescale imposed by the regulations. Suspension of payments as a sanction for matters which are beyond the claimants control seems unduly harsh.

Even if a return can be made, the value of it may be open to question. There are many examples of small businesses which experience ‘lumpy’ turnover. A builder may be lucky enough to land a contract which will take him six weeks to complete. Under the new proposals, he might have to return two weeks of income (from previous jobs), less materials costs for the whole contract, in month one, no income at all in month two while the contract is in hand, and then the full six weeks of income, plus any further jobs undertaken, in the third month. The resulting patchwork of irregular payments from DWP will do nothing to aid household budgeting for the claimant.

Equally, if a trader takes a fortnight’s holiday this will reduce turnover disproportionately compared to an employee for that month. Illness affecting ability to work will upset the business’s cash flow. Advance purchase of stock in seasonal trades will distort the figures, as will the corresponding income peaks during the selling season (whether in late autumn for Christmas gifts or over the summer for show based sellers). In far too many cases a small business, especially one with no employees and which relies in part on a partner’s income or savings from eg a redundancy payment, will have fluctuating monthly results which mean that any given single month cannot be guaranteed to give an accurate picture of the business’s results over time.

While it may be that over the course of a full year the computer will have calculated and paid the correct amount to the claimant, there is a risk that the claimant will not be able to check this. Moreover it will be far harder for a claimant to be sure that they have received the right benefits each month where the amount paid varies every month. The certainty of a fixed monthly amount would aid claimants more than receiving exactly the ‘right’, but different, amount each month. There is also of course the risk that a business may have spikes of costs or income so great as to push it beyond the upper or lower limits in a single month, distorting the overall position.

Small business should have the option to report income at longer intervals, or if monthly returns of income are retained, for adjustments to claims to be made on the basis of a three month rolling average of results. Responsiveness of the system to the individual’s changing circumstances is a worthy objective, but imposing a significant administrative burden which will serve to create an overly sensitive system, generating confusing and wildly fluctuating payments, runs counter to the policy objectives of simplification and support.

A third significant issue is the basis of the calculation of income. Small businesses currently have to prepare accounts on which their direct tax returns are based, and separately keep records for VAT. ACCA is disappointed that DWP and HMRC have not committed to using the same simplified methodology for small businesses, whether they are calculating what they owe to the state, or what the state owes to them. The mismatch between the two will serve only to confuse those for whom form filling and officialdom is already a significant burden, and for no apparent advantage.

Whatever scheme is adopted for simplified record keeping for small business, it should be uniform as far as possible across all that business’s dealings with the state. Quite apart from the risks of unfairness where individuals are expected to pay their taxes based on different figures to those which determine the level of benefits to which they are entitled, it seems counterintuitive to deliberately introduce further complexity to the bureaucratic burden faced by small business in the UK.

We would urge DWP to investigate fully the potential for distributing free of charge software tools to assist those claimants who are online and computer literate in calculating their income, but this must not deflect from the underlying importance of aligning the bases of income reporting for both tax and Universal Credit. It is equally essential that the availability of online tools for some claimants does not lead officials to believe that a reporting system which relies upon computers might be acceptable. This would not be the case. The system must take account of the significant proportion of small businesses for whom a computer is not a business requirement, and who (absent of bureaucratic requirements) would not need to use one in order to conduct their affairs. They should be able to prepare their claim, including the calculation of income, without having to use complex software. Those who can benefit from the availability of such aids should have the opportunity to do so, but individuals who do not currently use a computer should not be forced to do so purely for the administrative convenience of the benefits system.