Self-employed with cash saved to pay tax? It WON'T reduce your universal credit entitlement
If you're self-employed and have been putting money aside to pay your self-assessment tax bill, this WON'T reduce the amount of universal credit you're entitled to claim, the Government has confirmed.
Usually, if you – and your partner, if you have one – have savings (or, technically, capital) of more than £6,000, if you apply for universal credit, payouts are reduced. If you've savings worth £16,000 or more, you can't claim any universal credit at all.
However, many self-employed people sensibly put part of their income aside throughout the year to make sure they have enough money to pay their self-assessment tax bill.
And with many self-employed people turning to universal credit for the first time because their earnings have been hit by the coronavirus pandemic, many are worried the money they've set aside for tax will mean they're due less universal credit.
But after discussions with MoneySavingExpert.com founder Martin Lewis, the Department for Work and Pensions (DWP) has confirmed that any money saved to pay off self-employed tax bills WON'T be counted as savings, so won't reduce the amount of universal credit you're entitled to.
This applies even if you're saving the money in a personal account rather than a business one – though you'll need to be able to prove the money is for business purposes.
See our Coronavirus help for the self-employed guide for full and constantly-updated info on the support available for self-employed people.
How we got the rules on tax savings confirmed
Since the start of the coronavirus pandemic, Martin's been contacted by lots of self-employed people who are confused about how their savings for their tax bill could affect their claim:
Martin had planned to research whether self-employed people in this situation could pay their tax bills early, therefore getting rid of these savings and making them eligible for universal credit:
But after Martin asked them about this issue, the DWP confirmed that any savings put aside by a self-employed person to pay their tax bill WON'T affect their universal credit entitlement – so there's no need to pay early.
What the Government says
A DWP spokesperson said: "Most commonly, we would expect people to have business assets in a business account, including savings for tax liability, which would not be counted towards their capital limit."
"However, if someone has money in their personal account that is to be used for business purposes, it will not be counted towards their capital, but they may be asked to prove that the money is for business purposes.
"People should make clear in their application the savings that are business assets, and note it in their online journal."
So if you've savings set aside to pay tax, put a note of this in your online universal credit journal and tell them when they call, and it should be discounted from the calculations. For more info, see Help claiming universal credit.