Revenue and Customs Brief 7 (2015): new rules for the self-employed claiming Working Tax Credit
Published 25 March 2015
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1. Introduction
From April to get Working Tax Credit (WTC) self-employed people will need to meet new criteria. This brief provides further details on these changes.
2. Who needs to read this?
Self-employed WTC claimants or advisers who support claimants.
3. The changes
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.
4. 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’ current WTC 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 for us to look at the decision again.
5. Further information
All claimants affected will receive information from HMRC about the new rules and the action they need to take before any awards are changed.
Further detailed guidance will be available on GOV.UK from 6 April.