3. The tax and benefits position


Some who know little of LETS consider it an opportunity for benefit fraud and tax evasion. Nothing could be further from the truth, because it is in the nature of a LETS system that the income, expenditure and current balances of all members are made available to all others. There is nothing to prevent tax or benefits officials joining privately and making use of this information in their official capacity; nor would any LETS administrators be likely to refuse cooperation in response to a legitimate official enquiry. I can only comment on the position in the UK as I must claim ignorance of the tax and benefit laws elsewhere, but from what little I have gathered, I understand that similar principles apply throughout the English speaking world. According to Michael Linton, the originator of the first LETS system in British Columbia, Canada, the current tax and benefit laws (presumably in Canada ?) are as appropriate to LETS money systems as the 19th century transport laws were to jet travel.

The tax laws are less of a problem to the development and use of LETS than the benefit rules. Tax is payable on any regular source of income earned in connection with a business. I am not aware of anyone with a regular contract of employment where the income is paid wholly or partly in LETS currency but resumably in this event similar principles will apply as to the taxation of fringe benefits. So if you were working as a full-time computer programmer and you sold a bicycle for LETS you would not be liable for tax, but if you sold bicycles as a regular business activity and sold one or two for LETS then you would be liable for tax on the income earned, the tax being payable using legal tender. A business operating mainly using LETS must therefore earn sufficient old currency to pay the obligatory taxes under current law. One way of doing this is for a business to charge a percentage of the total price using old currency.

The position on benefits is variable and seems open to negotiation, as it currently depends on the attitude of different claims assessment officials. This varies between benefits officers threatening to cut off all benefit in response to the suggestion that a claimant was thinking about earning LETS income and ignoring LETS income totally because the limited range of goods and services available within a small and new scheme can only represent social favours for which benefits are not normally provided; e.g. if single parents on benefit barter occasional babysitting services this should not be classified as income for the purpose of deciding whether benefits should be withheld. A kind of income for which it is not easy to calculate a financial equivalent can result in much extra work for the officials involved and many would privately prefer not to know about it. 

Another reason why the benefit regulations are problematic is that the social security system was never designed for the modern reality of many people being able to gain temporary and occasional marginal employment which does not together add up to enough for life's essentials. Having to reassess the benefit level involved for each of these many changes in personal circumstances goes beyond the ability of the officials and claimants to handle the paperwork and administration. In practice this is why so many are forced into a semi-criminal underclass where anything other than the absolute bare essentials of survival is obtained through the black economy. 

There seems to be a need for clearer procedures for claimants to become more self-sufficient within the law and for less reduction in benefit for each additional unit of income earned. These changes may need to be combined with a different approach to providing minimum benefits to those in need of them. 

Are we to accept that the purpose of a money system is to match needs and resources and that there are many unmet needs ? If so then it follows that if the money system operated correctly there would be no such thing as unemployment. Supplementary benefits and the dole are patches which are only needed because the system is malfunctioning. In later chapters I will look at the question of how using a LETS based money system enables us to tackle this problem.


Version #001 20-12-94

Written by Richard Kay  rich@driveout.demon.co.uk