Bartering for tax breaks breaks Tax cops let off swaps

Local authorities are pushing the government to allow people on social security benefits to conduct a form of barter trade called Lets without losing welfare payments. Meanwhile the Inland Revenue has conceded that in most cases earnings from Lets (Local Exchange Trading Systems) will not be subject to tax. Both measures could boost Lets schemes, of which there are 500 around the UK involving many thousands of people.

In a Lets scheme, participants trade services ranging form aromatherapy to housework. Lets members pay for services with a type of local currency, names of which range from the Frome (in Frome, Somerset) to the Moti (which means "pearl" in Hindi) in the Naari Lets scheme run by Asian women in Leicester. The "currencies" are only redeemable for other services offered by Lets members.

Local councils say that Lets schemes have been held back by the fear that receiving Lets earnings may lead to a loss of social security income for those on benefits, and councils have also considered lobbying for Lets credits to be disregarded for tax purposes.

A spokeswoman for the Department of Social Security (DSS) confirmed that known LETS income does currently lead to a reduction in benefit payment, with the exception of the first pounds 5 of earnings for a single person, pounds 10 for a couple, or pounds 15 for a lone parent (the so-called earnings disregard).

Paul Franklin, an Inland Revenue spokesman, said that receiving Lets earnings would in many cases not be regarded as taxable income.

If earnings come through normal work, they are taxable like the profits from other self-employment. But if they are for services that are not part of normal trade, they are not normally taxable.

People who have traded on Lets in the last financial year who are completing a self-assessment tax return are advised to speak to their local tax office for guidance on whether Lets credits should be declared.

Governments in Australia, New Zealand and Ireland have already decided to allow benefits recipients to earn Lets credits without it affecting social security payments.

They believe this assists people on welfare to get used to the disciplines of work, and to receive what was in effect on-the-job skill training.

Bob Bone, co-ordinator of the National Local Government Anti-Poverty Forum, said: "We are lobbying the Government to look positively at Lets. We see it as a way of advantaging the disadvantaged. We would like Lets to be disregarded [for tax and social security purposes]. It is not income, though there are elements that might be considered as income."

Not all Lets activists are happy with the moves, though. Angus Soutar, of Lets-Go Manchester, one of the largest local Lets development agencies, says the proposals are "half baked", and will encourage people to use Lets to cheat the benefits system. Mr Soutar's biggest objection is to the potential role of the Secretary of State for Social Security, who would have to sanction individual Lets schemes before members were eligible for the earnings disregard.

q For more information on Lets schemes, contact Lets Link on 01985 217871