Did you know? • Self-employed may need to show “commercial and profitable, genuine and effective” businesses to get Working Tax Credits. • Self-employed may need to pay themselves the minimum wage for 16-30 hours per week to get Working Tax Credits.
Following the Chancellor’s 2014 Autumn Statement, I raised the following query with HMRC:
From April 2015, self-employed WTC claimants will need to register with HMRC as self-employed. Those declaring income less than the equivalent of working 24 hours per week at the national minimum wage will also be required to provide evidence to HMRC that the work they are undertaking is “genuine and effective”. My concern is around disabled people who are working fewer hours – some will be doing so on “permitted work” and still receiving benefits while others may be getting their businesses started or may never work over 16 hours due to their health
The following response has been recently received:
“The Autumn Statement 2014 announced the introduction of a ‘genuine and effective work test’ to ensure that only people meeting the conditions of tax credit entitlement are able to benefit. In the 2015 Budget the Government has announced that, after further consideration, a revised test will be applied so that in order to qualify for WTC a self-employed claimant will need to be carrying on an activity which is “commercial” and “profitable” or working towards profitability, and is organised and regular.
The test will be applied to the working hours requirement used to qualify for working tax credit as a self-employed claimant. The working hours requirement will vary between 16 and 30 hours depending on a claimants circumstances in line with the current working tax credit rules. The hours requirement is 16 hours for those entitled to the disability element of working tax credit.
If earnings from self-employment fall below an amount equivalent to the working hours requirement x National Minimum Wage (NMW) per week, claimants may be asked to provide evidence to HMRC that their work is commercial and profitable, organised and regular. HMRC may ask to see business records and, or further supporting documents such as a business plan, future cash flow and profit projections, trade specific documents or information on what work there is in the pipeline.”
Newly self- employed will need to demonstrate how they intend to carry on their self-employment on a commercial basis and how their self-employment will become profitable, organised and regular.
The revised test aligns more closely with principles already established in tax case law on whether a person is self-employed and also the self-employment test used for both Tax Free Childcare and Universal Credit.”
Over recent years there has been an exceptional increase in people becoming self-employed – and many may have been claiming WTC. There is already concern in some areas that these micro-businesses may have limited sustainability due to individuals’ lack of preparedness (inadequate market research, marketing, business planning, ability to manage financial records and more). This additional requirement for those claiming WTC may increase the pressure – and test how effective New Enterprise Allowance and other business support provision has been in creating sustainable businesses.
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