Thursday, 22 March 2012

A WARNING to those on low income

Careful when dealing with government benefits!

I always avoided them. I wanted to be proud of supporting myself and didn't want to be a leech on people who worked hard for their cash. But when I decided to leave work and attempt to run my own business, benefits seemed to be the only way forwards.

Being self employed requires a lot of hard work and financial control. Work, and therefore money, tends to come in bursts, which is difficult to contend with when you've relied so far on a steady income. You need to be able to stay on top of what you spend and when you spend it, never going on a spending spree just because you've come into a few hundred pounds: you have to be aware that next month you might need that extra couple of hundred!

At the start, you might not make any money at all. But you've still got to eat and pay the bills, so you'll look absolutely anywhere for a few extra pennies. And there, staring you in the face, are benefits. Free money. Money that you've already paid tax towards. All you have to to is prove that you're not earning much and they put it right into your bank account. And it's organised by the government, so you must be able to trust it, right? It's purpose is to help people in this kind of situation, right?

Well, it does help a little. It's nowhere near enough to live off and it's a royal pain in the arse to get started: you need to fill out forms and provide accounts and spend hours on the phone, mostly listening to that rusty classical music they pump through with the odd interuption to remind you you're in a queue because their staff are busy helping someone else. But once it's going, at least until the end of that financial year, it's just the odd twenty pounds or so that goes straight into your bank account.

But here's the catch. We're in the financial shit right now. Right in it, up to our chins. Every decision our government makes is based on finding money from somewhere. There's a lot of pressure on services like benefits to keep costs down. Benefits and unemployment are, in particular, a very grey area. Nobody wants unemployed people on benefits who earn no money. It means that people in work have to pay to keep them alive. It means the economy is bad. It's embarrassing for the government and it's very difficult to fix. The benefits system wants to get people off the system.

So if you're going to get yourself into it, you need to be aware of exactly what you're getting yourself into. I wasn't and I've been bitten in the arse and let me tell you it's not a small bite and it bloody hurts.

When I applied for benefits they based my claim on what I had earnt the year before, when I was still employed. I told them that I was now self employed, but they're not interested in the details, only the figures. A year went by and I didn't tell them that I was now earning less. Basically, I didn't think it mattered because I was earning so much less, I assumed all that would happen was that they'd owe me more money.

In January I filled in my first tax return and was automatically contacted by the tax credits people saying I was entitled to more money than they had been giving me. Without having to do anything, a sum of money was put into my bank account. A month or so later I was then contacted separately by the council tax and housing benefits office, telling me that because I was earning more tax credits now, I was no longer entitled to council tax or housing benefit and not only that, but I now owed them almost £500. I phoned to say this must be wrong and was asked to provide accounts for the last year, which I did. But when the new entitlement form came through, it still said I owed them £500. I phoned to check again, and was told yes this was right and there was absolutely nothing I could do, it was just the way the system worked.

Even though I can prove that I earned next to nothing during the last two years, because I didn't tell them that AT THE TIME, I owe them that money. And the fact that I didn't know I was going to be getting the money from the tax credits people makes absolutely no difference.

So, from personal experience, here is my advice:

1. IF YOU'RE SELF EMPLOYED, KEEP ACCOUNTS. Do them carefully and bear in mind the less you earn the less tax you will pay and the more benefit you can claim. But at the same time if you're looking to make it as a business, and if you want to be able to apply for loans, grants or investments, you will need to show that you can make money. It's a fine balance!

2. FILL IN YOUR TAX RETURN or they will chase you like dogs.

3. KEEP TRACK OF HOW MUCH YOU ARE MAKING. They will want to know exactly how much you make every year, so make sure you know it yourself. The amount you are given is based on what you earned the previous year. So if you're applying for benefits now, in 2012, they will want to know how much you earned in 2011. They'll want proof too so make sure you keep all your bank statements, payslips and P60 forms.

4. TELL THEM IF ANYTHING CHANGES. Tell them as soon as you know. Keep telling them if things keep changing. Yes it's a pain in the backside sitting on hold for 30 minutes, but your backside will be far more damaged if you don't do it and you get hit with a 'repayment'.

5. REMEMBER THEY'RE FICKLE. It's only natural to get excited when a large sum of money appears in your account, but bear in mind they might ask for it back. If it doesn't seem to make sense, contact them and ask rather than hoping for the best and spending it all at once, however tempting that is. They seem to change their minds at the drop of a hat.

6. TRY AND UNDERSTAND YOUR BENEFITS, because they're complicated. It's not just a case of having money put into your account. You'll have tax credits that are supplied by the tax credits people. Then you'll apply to one place for housing benefits and council tax, but they'll be paid separately: housing benefit into your account, and council tax benefit taken off your council tax bill in what seems like an almost arbitrary way. And some parts of the systems seem to talk to each other but not others: for instance, the housing benefits and council tax people heard that I was earning more tax credits, but not that it was because I was earning less money overall- it was still judged on the intial figure I presented when I applied. So the best thing to do is sit quietly from time to time with a strong cup of coffee and plenty of biscuits to keep you sane, and to go through all the paperwork and attempt to make sense of how much you are being paid, when, and why. If it doesn't make sense then phone them and get them to explain it to you.

7. TAKE IT SERIOUSLY. It may seem like an easy route to money, but this is your own income you're dealing with here and if you don't pay attention to it, you might end up in difficult circumstances like me. It seems totally obvious to do all these things, but you'd be surprised how easy it is not to. I only learned in hindsight because they don't tell you any of this when you apply.

And best of luck to you!

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