Self Employed and Claiming Working Tax Credits

[Voddiemonster]

Is anyone else self employed and claiming working tax credit?

I was advised by a friend that because i am just starting out and I have no capital or savings that I could put down Zero income but claim my hours. I would then be entitled to full tax working tax credits. Does this sound right?

I am just concerned because i have had so much trouble with working tax credits before and i am still trying to get back working tax credits due to me since January, whilst working full time in the NHS so when i do make my change of circumstances, i want to ensure that i do get things right and maybe they wont make any errors this time.

I have two children under 16 and i am a single parent if that helps.

 

[miketombs]

You're certainly entitled to claim WTC whilst you're self-employed. It's usually based on the previous year's income, but if (as in you case probably) there will be completely different circumstances, I imagine you can give an estimate for the current year. That won't be zero though, it will be your expected profit.

 

[Voddiemonster]

Many thanks for the advice. I mentioned the Zero income as i was informed that when you are starting a business from scratch that the inland revenue does not expect you to make any profit within the first year of business. Not sure if the advice i have been given is right but that is what i have been told.

 

[carey bookkeeping]

Hi, You are just down the road from me!
Be very careful about putting a 'zero' income. Although this may well end up the case in your first year of trading. If your business did make a profit ie £2000 then that is your earnings for the year. Its best to keep a track of profit over the year and update Child Tax Credits regularly so they can change and amend the claim. You dont want to end up paying any of it back!
But yes you would be entilied to it so go ahead and claim but just watch as the year progresses.

 

[Voddiemonster]

Thanks for the support Judith. Oh another Southampton lass *waves*
Yeah i know i will have to be careful. In the last 6 years they have messed up my working tax credits 8 times. Each time they have underpaid me and i have had to chase money i have been owed. They have forced me out of work for the 2nd time in 3 years due to this andthe simple fact that without that money i could not afford childcare. Instead of going on income support this time i thought i would go self employed and try my own venture.

Dont get me wrong im not rushing into all this with my eyes shut. I have thought long and hard about working from home self employed for a number of years. I would have just liked to do it my time and not through there mess ups. But then again i could look at it as they pushed me in at the deep and i always seem to work better on that basis anyway lol.

Some times bad things happen for a reason and i believe you can turn most negatives in to a positive. I may even bring some business your way once i crack on and get going.

Have a fab weekend.

Gina x

 

[louise.ann]

hello people
i have justcome out of employment but starting self employed on monday 16th doing the similar job (travel agent) i do any way get workingtax credits and child tax credits because i have a baby but live with partner too. Will i still be entitled to gett he same amount i get now or will i be entitled to more working tax credit seems though i wont be earning as much as when i was employed, becauseit is commission based only??? thankyou

 

[Echo's]

You can give an estimated earnings figure for the year, i think the deadline is july. then give the actual earnings by end of Jan. Always best to over estimate and get a back payment in the january than under estimate and owe them.

You can earn about £8000 i think before the credits start being reduced.

 

[lukealan22]

Is anyone else self employed and claiming working tax credit?

I was advised by a friend that because i am just starting out and I have no capital or savings that I could put down Zero income but claim my hours. I would then be entitled to full tax working tax credits. Does this sound right?

I am just concerned because i have had so much trouble with working tax credits before and i am still trying to get back working tax credits due to me since January, whilst working full time in the NHS so when i do make my change of circumstances, i want to ensure that i do get things right and maybe they wont make any errors this time.

I have two children under 16 and i am a single parent if that helps.

The figure you put down is what you assume you will earn after all your sef employed deductions. The final figure that you will pay tax on so I am self employed and after deductions i earnt zero as i only earn about 5k a yr and it isnt even my tax allowance before my stock or petrol etc. Being your first year you have to estimate what you think the figure will be an accountant can advice you if your not sure. I hope this helps

 

[TraceyAnn]

My husband and I are both self employed so our income varies from year to year. I found that if you give them the estimated proft figures as soon as you can then keep them upated with the final figures they have always been very helpful to us. And yes I did get a bill saying I owed them £4000 one year but this was dealt with quite quickly once they received the relevant income for each of the years involved.

Good luck for the future!

 

[Bridget1968]

On the tax credits forms when you are self employed do you declare your profit (income less expenses) or taxable profit (income,less expenses, less personal tax allowance )

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[TraceyAnn]

net profit less personal pension payments plus any interest received

 

[Bridget1968]

is that net profit after your personal tax allowance has been deducted and therefore the figure you are taxed on?

 

[Jenni384]

No, don't take of the personal allowance.

 

[ginantonic]

I've been self employed for 4 years and claiming Tax Credits. Haven't had any problems with them. The 1st year was based on my previous year on PAYE, then I averaged out what I'd earned from SE and they used that figure. Every year since, I have just updated them with an average of my earnings and they've been OK with that. This year I had slightly increased income, and they are adjusting my TC to reflect this. I agree, as long as you keep them updated you're OK. If you also claim any Housing/Council Tax benefit, you must make them aware of any increase in the amount of TC paid to you, as it apparently is not done automatically, as I found out, and had to pay a considerable amount back A genuine mistake on my part, but I had to be interviewed, as they thought I was committing fraud!
To complicate matters further, I occasionally do some PAYE work, too, and that is also taken into account.

 

[stphnstevey]

Isn't it something like £20,000 your income can change by and they won't change your tax credits?

Do you pay interest to them if you owe them? If not, then it is efectively an interest free loan - solong as you don't need to spend the money

 

[Jenni384]

Isn't it something like £20,000 your income can change by and they won't change your tax credits?

Yes, it's either 20k or 25k, I can't remember offhand.
Eg, year 1, income £10k, award is based on 10k.
Year 2, award based on 10k from last year, actual income 15k, extra 5k disregarded and no overpayment occurs.
Year 3 award based on 15k, actual income 12k, at end of year extra award issued for lower income.

If, however, income in Year 1 10k and in year 2 you think income will be 5k, you can ask them to base award on 5k.
If income is actually 7k then an overpayment will have occurred - as last years income was higher than 7k.

Do you pay interest to them if you owe them?

Nope.
And if there is an overpayment you can pay them back over a year at £x per month

 

[stphnstevey]

Useful if you want to take a low salary or dividend during a year for what ever reason and keep the money in the company.

 

[Jenni384]

Useful if you want to take a low salary or dividend during a year for what ever reason and keep the money in the company.

Yes, but remember if you are claiming WTC, any salary from the company has to be at NMW.

 

[stphnstevey]

Even for director's (where NMW rules don't normally apply)?

 

[Jenni384]

Even for director's (where NMW rules don't normally apply)?

Yes
Big discussion on it here.

 

[jo12345]

i have been searching on here for other information i need and i was reading this and im more confused than ever.
the job centre told me that if my business does less than 16hrs i will get £40 towards my rent and child and tax credits but, but if i go over 16hrs i will get nothing is this right? and if so how am i supposed to go to full time with £400 rent and 2 boys to feed if i get nothing until the business is earning enough to cover it all?

 

[wizzard]

i have been searching on here for other information i need and i was reading this and im more confused than ever.
the job centre told me that if my business does less than 16hrs i will get £40 towards my rent and child and tax credits but, but if i go over 16hrs i will get nothing is this right? and if so how am i supposed to go to full time with £400 rent and 2 boys to feed if i get nothing until the business is earning enough to cover it all?

Have you been on the HMRC website and gone through their "do I qualify?" checker?

 

[jo12345]

no i havnt been on hrmc website this was done by the job centre, they said if i go over 16hours i wont get anything at all

 

[Jenni384]

Last time I checked, there are 2 different benefits, dependant on hours worked:

Under 16 hours - entitled to JSA
Over 16 hours - entitled to working tax credit

Both are income-based, i.e. they will scale depending on how much you earn from the hours you do.

 

[Echo's]

Over 16 hours - entitled to working tax credit

Both are income-based, i.e. they will scale depending on how much you earn from the hours you do.

i think also if you work over 30 hours a week then you get more tax credit than if its over 16hours but under 30hours.

 

[papverpoppies]

I have just just returned the form for WTC.

I came off job seekers allowance as I was about to put my business together.

I had to put Zero earnings on my form for the year (as I am not expecting to get my business up and running and pulling in the money before Autumn of this year).

I am though spending/working 16+ hours a week putting the busines together (a boarding cattery) I am also going to be running another small business alongside the cattery.

I have no idea what my expected earnings will be, as it will depend on how quickly (once opened) my business takes off.

I have already spent a lot of money (architect) planning application, to name a few - I understand I keep all of these and hand them over to my accountant to claim tax's against the business. Is that correct?

Thanks

Poppy

 

[jo12345]

Last time I checked, there are 2 different benefits, dependant on hours worked:

Under 16 hours - entitled to JSA
Over 16 hours - entitled to working tax credit

Both are income-based, i.e. they will scale depending on how much you earn from the hours you do.

i dont get that becuase im currently on income support and they told me under 16hours i get help but anything over i get nothing at all no tax credit, no housing benifit

 

[ginantonic]

I used to work as an employment/benefits advisor - as long as you are working over 16 hours a week you are entitled to Working Tax Credits. You will also get Child Tax Credits. I think the Jobcentre meant that you wouldn't get any help from THEM, but WOULD from Tax Credits. You can still claim TC & CTC when self employed, and still get Housing & Council Tax benefits, it's just worked out differently. As a general guide, a single parent with 2 school age children, earning about £70-£90 per week will receive almost the same amount of help with rent and council tax as if you were on Income Support.
I would go in person to see them at the Housing Benefit dept, they will explain it in more detail, and tell you how much you will get. You will need to show them some form of proof of earnings when you're self employed, e.g. any receipts you've issued, or accounts books, usually every 6 months, then they work out your benefits from that.
Ring the Tax Credits helpline, and they'll work it out for you, too.
Hope this helps.

 

[jo12345]

they definitly said to me over 16 hours you get nothing at all from anywhere. she told me to be carefull not to go over 16hrs as i would recieve nothing
housing benefit said they couldnt give me any info, but it was on the printout from the job centre, i will go back in and see them and ring the tax office looks like ive been misinformed, and its the other way round when i first start i will recieve nothing until im on 16hrs
thanks for the info

 

[papverpoppies]

The tax credit helpline were very helpful with me.

The job centre (finished signing end of) not very forth coming accept to tell me to - start to claim WTC if I was planning on starting my own business.

The rest I researched via the website and the said helpline.

It does all get very muddled and confusing as to what you can and cannot claim for - especially if you children.

Poppy

 

[jo12345]

i am tying myself up in knots with it, i will definitly ring the number. so do you get no help for under 16hrs then?

 

[papverpoppies]

If you are working any hours (under 16) and claiming JSA you still have to tell the job centre.

If you are working 16+ hours a week then you can claim working tax credits (as 16 hours paid work will not be a fantastic wage) and entitle you to tax credits.

Try not to get worked up (not easy I know) just check with ALL concerned and take it from their.

Poppy

 

[papverpoppies]

If you are claiming JSA and live alone ie NO children you get very little else.

If paying Council Tax you get help with that whilst on JSA - they will also cover the interest only payment on your property if you own your own house (subject to requirements) being met.

If you claim JSA and have children - then you will get other benefits.

Once you come off JSA and apply for working tax credits, the form you have to fill in will ask if you have a family (or live with anyone).

You get a booklet explaining how to fill the form in, and you can also ring them and ask for help if in doubt.

Poppy

 

[jo12345]

thankyou for all your replys,i feel much better about it all now, i dont know why she said that but i can see that you get help for 16hrs and over, plus i remebered last night that you can earn £20 while on income support without it effecting anything so that will cover the under 16hrs, i dont know about jsa as im on income support

 

[gillyfleur]

Having put in my claim for WTC and received my award letter yesterday - I've resisted for 12 months but decided sod it, everyone else is getting it and I've paid my tax for 30 years and never claimed a penny - is it me ? or is it a stupid system ? one of the reasons I never claimed last June was because when the forms came it asked for earnings in the 2007/08 tax year and mine were well over the threshold for a claim because I was employed for 11 months of that tax year, but there was nowhere to enter what my earnings for 2008/09 would be. I became self employed following redundancy in March 2008 so my earnings on start up were going to be low. I chucked the forms away as I decided following the questioning on the phone that they wouldn't give me anything, but having done the accounts to 31/3/09 and with showing low profits I decided to try again. I know you can't ever know to the penny what you will earn going forwards but most people could make a best guess. Surely if they asked you estimate your current year earnings they'd get things far more accurate in the first place and stop having to get people to pay it back. Who can afford to pay it back when the reason you've applied in the first place is because you're skint and you've spent it on living ! My current claim includes a declaration of bank interest received in early 2008 when interest rates were high and I had money in the bank but thats been spent on living and rates are now low so I won't receive it this year but there's no where to tell them that. Madness !!

 

[frog]

Yes it's insane! Does anyone know if there are checks on how many hours you are working? I am a self employed massage therapist so I see clients but also have to do admin, publicity research etc so like everyone else I don't have a record of my hours of work. Also, I live with my partner who is not working but may be starting some part time employment soon. In addition I've just noticed on some advice notes that if you are earning less than 8611 per family pa then it's assumed you are working less than 16 hours because otherwise you are getting (or presumably paying yourself) less than the minimum wage. Does that mean that we can all be prosecuted for underpaying ourselves?! Thanks.

 

[ginantonic]

I have the same problem with WTC, but have been on it for the last 3 years as self employed, and they actually recommended I state I am working 30+ hours so I can claim the extra. It was explained to me that even doing your paperwork, being on the phone, etc as well as doing your actual physical work all counts towards your hours. I have never had to show them any proof of income, just give them a figure, and, yes, it is very obvious I am working for below min wage!
Very confusing!

 

[Jenni384]

In addition I've just noticed on some advice notes that if you are earning less than 8611 per family pa then it's assumed you are working less than 16 hours because otherwise you are getting (or presumably paying yourself) less than the minimum wage. Does that mean that we can all be prosecuted for underpaying ourselves?! Thanks.

If you're self employed you don't need to worry - you state your profit, you state your hours worked, they do the maths.
You can't pay yourself as self employed, you simply make profit or loss, so there's no worry of prosecution for not earning enough!

It was explained to me that even doing your paperwork, being on the phone, etc as well as doing your actual physical work all counts towards your hours.

Absolutely agree with this. If you didn't do it, no one else would, and aspect of the business would suffer. Thus it's work!!

 

[debbie]

I work at home with 3 children under 7 yrs old. The type of industry i work in, i had to set up a company, so my suppliers would supply me, as they wouldnt deal with sole traders, so i have set up my company and registred for VAT, Now I am having a panic about my tax credits. I pay myself a small salary, but nowhere can i find if Directors can claim tax credits, I an worried as if i cant claim they will want it all back. By working from home i have saved the government 70% of my childcare fees which would have been about £1500 if i went out to work, can anyone advise please - thank you

 

[Jenni384]

I work at home with 3 children under 7 yrs old. The type of industry i work in, i had to set up a company, so my suppliers would supply me, as they wouldnt deal with sole traders, so i have set up my company and registred for VAT, Now I am having a panic about my tax credits. I pay myself a small salary, but nowhere can i find if Directors can claim tax credits, I an worried as if i cant claim they will want it all back. By working from home i have saved the government 70% of my childcare fees which would have been about £1500 if i went out to work, can anyone advise please - thank you

Yes you can.*
This is discussed in some detail earlier in the thread (possibly around page 3?).
I believe the current interpretation is:
State your remuneration (including gross dividends), state your working hours, and proceed with tax credits as normal.
The only thing to watch out for is if your company could afford to pay you more (read: a market remunerative rate for the work you do), and doesn't (to enable you to get higher tax credits) there is an anti-avoidance provision for this, i.e. don't do it.

By the way, have a look at the Sole Trade vs Ltd Co sticky at the top of the forum to look at salary/dividend mix; taking money out of the company in the most tax efficient way could get you a little more money also.


*Disclaimer: This is general advice based on my current interpretation of the legislation and does not replace formal paid advice