Entitlement: WTC entitlement - Qualifying remunerative work: Working at home, foster parents, test-trading, employment schemes and deciding whether a scheme provides employment
The Working Tax Credit (Entitlement and Maximum Rate) Regulations 2002, Reg 4(1)
The following categories of workers should not be automatically discounted from being in qualifying remunerative work. Consideration should be given to the conditions for being treated as being in qualifying remunerative work under TCTM02410..
Working at home
People who work mainly at home (for example boarding-house owners, child-minders, writers and artists) could be doing qualifying remunerative work if they meet all four conditions in TCTM02410.
The Working Tax Credit (Entitlement and Maximum Rate) Regulations 2002, Reg 4(2)(b) & The Tax Credit (Definition & Calculation of Income) Regulations 2002, table 8 items 3 provides that respite carers whose payments from, for example, the Local Authority and covered by the ‘Rent-a-Room’ scheme are not considered to be in qualifying remunerative work.
Adult Placement Carers
From 2003/04 simplified income tax arrangements for adult placement carers apply, which involve the use of a fixed expenses formula. This will result in many carers being in the position of having no profit and no loss for income tax purposes. However all carers who do not opt for the Rent A Room scheme could be considered to be in qualifying remunerative work and the number of working hours declared on the form should be accepted.
A definition of who is considered to be a foster carer can be found at BIM52755.
Where a person is working as a foster carer and is entitled to ‘qualifying care relief’ their profits for a tax year from the provision of qualifying care are deemed to be nil for Income Tax and Class 4 NICs purposes if his or her total receipts from qualifying care do not exceed an individual qualifying amount. This may result in many foster carers having no profit and no loss for income tax purposes. Individuals whose total receipts from qualifying care exceed their qualifying amount can choose between;
- calculating their taxable profits in the normal way on total receipts less actual expenses and capital allowances (the ‘profit method’); or
- treating as their taxable profit the amount by which their total receipts from foster care exceed their qualifying amount, without any separate relief for expenses or capital allowances (the ‘simplified method’).
Whichever method is used, the carer is chargeable to Income Tax and Class 4 NICs on those profits and therefore these profits are to be included as income for tax credits.
In these scenarios above they will be considered to have met the definition of a self-employed worker, as detailed in TCTM02415. They will, however, be expected to meet the other qualifying conditions as per TCTM02410. Where a foster carer makes a loss they may not have met the definition of a self-employed worker, as detailed in TCTM02415.
Participants in the DWP initiative New Deal self-employment route who are ‘test-trading’ should have qualifying remunerative work considered from the date they commence ‘test-trading’ or the date they start to undertake the required number of hours, if later. For HMRC, there is no concept of a period of test-trading. Like other self-employed people, participants are pursuing a trade or business with a view to making profits and are taxable on those profits and, as the work is done for payment or in expectation of payment, their work is remunerative.
A person attending an employment scheme receives payment as a reward for services. Any payment is subject to income tax and National Insurance contributions and is classed as earnings. The hours spent on a scheme therefore qualify as time spent in employment and should be included when considering whether the work is qualifying remunerative work. A person attending an employment scheme always has a contract of employment with the person or organisation paying the earnings.
Deciding whether a scheme provides employment
The Working Tax Credit (Entitlement and Maximum Rate) Regulations 2002, Reg 4(2)(c-f) & 4(2A)
A person who receives
- A training allowance or
- Monies in connection with participating in the Intensive Activity Period (reg 75(1) of the Jobseeker’s Allowance Regs 1996) or
- A sports award only or
- No monies other than discretionary payments disregarded in the calculation of the claimant’s income, or training premiums.
Is not regarded as engaged in qualifying remunerative work.
However, if either the training allowance or money received in connection with participating in the Intensive Activity Period (reg 75(1) of the Jobseeker’s Allowance Regs 1996) are charged to income tax as the profits of a trade, profession or vocation, then the person can satisfy the remunerative work condition. This only ever applies to people who have started self employment.
The definition of self employment for tax credits purposes is defined in reg 2 of Working Tax Credit (Entitlement and Maximum Rate) as follows; “self-employed” means engaged in the carrying on of a trade profession or vocation.