HMRC internal manual

Tax Credits Technical Manual

Entitlement: WTC entitlement - qualifying remunerative work: self-employed person

For a person to satisfy the first condition as a “self-employed” person they must be engaged in carrying on a trade, profession or vocation on a commercial basis and with a view to the realisation of profits, either on one’s own account or as a member of a business partnership and the trade, profession or vocation is organised and regular.

Commercial basis 

The self-employment must be carried on a commercial basis, this being the main aim of the trade, profession or vocation is to seek a profit and all actions/efforts support that aim.

When determining the commerciality of a customer’s self-employment consideration must be given to their individual circumstances. For example customers with caring responsibilities or a disability would not be expected to work more hours than required to qualify for Working Tax Credits.

However in all circumstances we would expect the self-employment to be developed/reviewed in order to improve the business with profit as the motivation for doing so.

To establish whether or not self-employment is carried out on a commercial basis it is may be helpful to look at what constitutes ‘uncommercial’. Self-employment may be conducted in an uncommercial way for instance the hobby market-gardening enterprise where the prices of fruit and vegetables do not realistically reflect the overheads and variable cost of the enterprise.

Examine the facts and look for the presence or absence of common features or characteristics of what a genuine trade would do and whether the business is being conducted in an uncommercial way.

View to the realisation of profits

The self-employment must be carried on with a view to the realisation of profits. If at any time, the self-employment is carried on so as to afford a reasonable expectation of profit, it is carried on (at that time) with a view to the realisation of profits.

‘With a view to’ embraces a range of realistic possibilities, which indicate that the view is a reasonable one.

The criteria for ‘expectation of profit’ does not specify any period within which the self-employment must be expected to realise a profit. It is sufficient that there is some realistic possibility of profit being earned at some future date, however distant.

There are two possible ways of establishing whether or not if the person’s self-employment is carried on with an expectation of profit: either it is not a reasonable expectation, or there is another reason for carrying on the trade.

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It is not reasonable expectation

You may be able to show that there is no possibility of profit ever regardless of however long the self-employment is carried on, so the expectation of profit is unfounded, by closely examining any business plan, profits projection or whatever is provided as the basis for the person’s expectations of profit. You are justified in pointing to past results when considering whether the person’s expectation of profit is reasonable.

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There is another reason for carrying the self-employment

A person who makes losses with no realistic possibility of making a profit may have some other reason for carrying on the trade. For example, it may be that the trade is a hobby or gives the person personal enjoyment. It may also be the case that the person is simply seeking to offset personal expenditure.

Organised and regular

Self-employment should be structured in an organised way and it should be regular and ongoing.