Self-Employment The New Rules Explained

Self Employment

Thinking of starting your own business?

From 6 April 2015, all new claimants who are using self-employed work to meet the qualifying remunerative work test for WTC, must show that they are trading on a commercial basis and their business is done with a view to achieving profits. The self-employment should also be structured, regular and ongoing.

For example, if their business activity is a hobby it is not likely to be considered commercial or have an expectation of realising a profit.

These checks are about ensuring HM Revenue and Customs (HMRC) only pay tax credits to those who are entitled. WTC will continue to support those who are carrying on a genuine business activity. These changes will not affect the rules for claiming Child Tax Credit.

How the changes will apply

Self-employed WTC claimants with earnings below a threshold (this will be based on working hours and the National Minimum Wage) will be asked by HMRC to provide evidence that they are in a regular and organised trade, profession or vocation on a commercial basis and with a view to achieving a profit.

The information we ask for should be available as part of normal business activity, for example receipts and expenses, records of sales and purchases. We may also ask for supporting documents such as a business plan, planned work, cash flow and profit projections.

During the early stages of self-employment it may prove difficult to make a profit. If someone in this situation claims WTC they may be asked to show that they have a commercial approach and how their business would become profitable. This could be demonstrated in a business plan.

HMRC will use the information provided to reach a decision about the claimants’ currentWTC award.

Claimants may lose their WTC if they cannot provide the evidence we ask for and may have to repay any tax credits they are not entitled to.

Claimants who disagree with our decision can ask HMRC to look at the decision again.