Author Topic: Self employment - tax credits  (Read 7159 times)

agapanthus

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Self employment - tax credits
« on: 12 Feb 2012 10:51PM »
Hi everyone. I am new, but I did go on Ouch a bit in the past.

Glad to find you all again here, and thriving (well as a forum anyway......). It's so good to see some of the same names again.

As you were all so helpful before I am going to ask a question and see if anyone knows....I see there is already a thread on Self Employment but I didn't want to interrupt Sofie's stuff as my question is a bit different.

I am in that 'happy' band who are going to lose the ESA money (Contributions related WRAG) in April assuming that it goes through in time.

I have thought long and hard about losing a third of our income, and how I can restore some money to us. Having just got through the ESA for the 3rd time on paperwork alone and seemingly for a long stretch (medical paperwork says not fit for work 'in the longer term'), I have put in for a 'reconsideration' for the Support Group, but I don't have a very strong case, and so have decided not to go onto the tribunal if I fail. I am hoping that I will get a result on that very soon.

I have been crocheting hats for a while, from specialist wool, and a local shop is interested in selling them. I also feel that I could try to sell them at local markets, (though fatigue would limit that avenue), and on the internet on specialist sites.

I understand from someone else I know who sells her craft items that it's possible to register as self employed for tax purposes, and only work at 16 hrs a week, which is the max I feel i could manage. When i did the benefits checker online it appears that I will get more in Tax Credits than I get on ESA which surprised me. My husband is retired and we own our own house, so Housing Benefit is not an issue. The calculation came in at over £100 per week (including the Disability Element of course).

Apart from all the setting up and making sure I keep good records, I wonder if it is really this easy? I haven't seen any info about anyone else doing this online, and just wondered if I was missing something? I only have to do this for about 2.5 yrs as I will then qualify for my State Pension, but it would fill a gap I feel as long as I can manage to pace the making of the hats, and find suitable places to sell them. I have some ideas for other things I could make as well.

I am a bit concerned about HMRC and whether they do any stringent checks if they find that people are getting so much in Tax Credit, and maybe not earning a great deal. When I had to give up work after an ME/CFS relapse the local HMRC people pursued me then to do checks on whether I was really eligible for tax credits and it rather freaked me out as it was 3 yrs after I had put in the claim, and they did it when I closed the claim in order to claim ESA. Thankfully I had kept all paperwork and all was fine, but I worry a bit about this being self employment and being less able to provide proof of things.

Any thoughts from anyone else's experience of this kind of thing?

I came i saw i fell over

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Re: Self employment - tax credits
« Reply #1 on: 12 Feb 2012 11:03PM »
I'm clueless about that sort of thing, I just wanted to say  >welcome< . I think everyone has either gone to bed or frozen solid... But I'm sure someone will be online at some point who can answer your question.

Tony

agapanthus

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Re: Self employment - tax credits
« Reply #2 on: 13 Feb 2012 07:35AM »
Thank you for the welcome, icisifo. If no one knows then I will be able to tell everyone about my journey as it unfolds. I gather that Tax Credits are to be incorporated in UC so maybe they will close this 'generous' loop hole soon anyway, but maybe it will get me through to my State Pension.

The beauty of this scheme is that I don't have to waste any energy on travelling to work, and I can take sick days if necessary, (I will ring in sick of course  >biggrin<).

If I only sell 5 hats a year though, will they ask questions?  >erm<

Sofie

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Re: Self employment - tax credits
« Reply #3 on: 13 Feb 2012 10:09AM »


If I only sell 5 hats a year though, will they ask questions?  >erm<

First of all, welcome.

Secondly, I don't think they will ask questions. With self employment and tax credits, they also take into account advertising, accounts, etc. as part of hours worked.

Hurtyback

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Re: Self employment - tax credits
« Reply #4 on: 13 Feb 2012 04:05PM »
I have heard talk that the HMRI are concerned about the large number of people who claim to be self-employed and only earning a low wage, it is thought that many people have gone down this route in order to get out of signing on to JSA (and thus conforming with the job-seeking condidionality). My understanding is that HMRI intend to class everyone as earninmg NMW for the hours they say they work, I don't know whether they will give leeway to start-up businesses which, of course, are less likely to make a profit in the early days.
 
As you are planning on doing this anyway, not as a way of side-stepping the work-seeking criteria of JSA, I would say that you have nothing to lose as you will be no worse off if these changes do happen.
 
Edit - there is a lot of talk about this over on the 'moneysavingexpert' boards, but I do not know where this information came from in the first place.
« Last Edit: 13 Feb 2012 04:07PM by Hurtyback »

Mabelcat

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Re: Self employment - tax credits
« Reply #5 on: 13 Feb 2012 04:05PM »
Sorry I can't answer your question but wanted to say 'Hi', I was Citron Shake or Kate if you prefer.  I hope all's as well as can be for you and your husband.  I'm clinging onto my job for now.

Sofie

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Re: Self employment - tax credits
« Reply #6 on: 13 Feb 2012 04:46PM »
Hurty - I've heard that too.

agapanthus

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Re: Self employment - tax credits
« Reply #7 on: 13 Feb 2012 05:13PM »
Thank you for your replies. First - hi to Mabelcat! I wondered if you were on here with a new name!

I contacted Good Advice Matters as they employ trained Welfare Rights Advisors and they did a recalculation for me of how much I would receive via WTC ... it seems that as usual my Maths let me down, (and the confusing online form), and we would receive around £75 per week, so not as much as I thought, but still useful if Hurtyback's predictions don't come true.

Thank you for your comments Hurtyback and I will certainly look into what you have said via 'moneysavingexpert'. I did not know of it as something that JSA claimants did, only that artists, writers etc apparently claim these tax credits.

I had read a throwaway comment on Rightnet about them being 'tightened up' for the self employed which concerned me, but I did not know of the possible plans around NMW. To be honest if they did this then I would have real problems as that comes out as around £97 for 16 hrs, and if I only got £75 per week in WTC then it wouldn't be a good plan re the hats idea. If they don't do it for a couple of years I would be OK as I only need this to keep me going until my State Pension, but obviously it will be a shame for others.

I must say, that all so far seems to be rumours though, as I haven't seen anything in writing about it, though it seems entirely likely that if it is seen as a 'dodge' then it will be limited.


Hurtyback

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Re: Self employment - tax credits
« Reply #8 on: 13 Feb 2012 05:51PM »
I think the point is that some people claim tax credits instead of JSA - they say they are working sufficient hours for tax credits but only declare very low returns, this has meant that even genuine people will be caught if there is a clamp-down. Keep detailed records of every minute you spend on the business - whether that is sourcing materials, making the hats or looking for sale outlets - as they all count as 'working' and can be used to back up your claim if required.

agapanthus

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Re: Self employment - tax credits
« Reply #9 on: 13 Feb 2012 07:22PM »
Oh dear. All is now clear - thanks for the warning Hurtyback. It's all happening as part of Universal Credit it seems. I may have a year then before the axe falls.....

Here is the low down -
http://www.universalcredit.co.uk/universal-credit-and-the-self-employed/
Self employed people may be hit by the new Universal Credit. Under new rules the Government may impose a miminum level of assumed earnings based on hours worked and minimum wage. The white paper states;
“Some self-employed people under Tax Credits report very low levels of income. We know that in starting up a business that it can take some time before it becomes profitable. But once established we would expect to see a reasonable income from the business activity. So for Universal Credit we are considering introducing a floor of assumed income from self-employment for those registering as such. The floor will be set at the National Minimum wage for the reported hours; clearly profits above this limit may be received and reported.”

There is this paragraph on the Child Poverty Action Group site on their UC factsheet...
'What about income from self-employment?
It is intended that there will be a new minimum assumed income from self-employment for people who are registered as self-employed. This will be set at the national minimum wage for the number of hours of work reported.'

Well I may start this off for this year, but once this comes in I may as well not bother as making a few hats is not going to bring in an equivalent of the minimum wage, that's for sure.

Hurtyback

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Re: Self employment - tax credits
« Reply #10 on: 13 Feb 2012 07:59PM »
Sorry to be the bringer of doom  :-(

Sofie

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Re: Self employment - tax credits
« Reply #11 on: 13 Feb 2012 09:41PM »
That makes no sense at all about the income:

I was told by someone to not to expect to make that much of a wage during the first year or so. Especially when you take into account the cost of materials, etc.

agapanthus

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Re: Self employment - tax credits
« Reply #12 on: 14 Feb 2012 08:59AM »
No worries Hurtyback - i would rather know the truth!

Sofie -  I agree it makes no sense, and in fact since the White Paper mentions the problems in starting up a business then you would think they would realise that the costs involved can be considerable and mean that people in fact could be operating at a loss to begin with. In my case my costs are less, but I still have to buy the materials to make the hats, and any costs re business cards, making a website etc.

Sunshine Meadows

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Re: Self employment - tax credits
« Reply #13 on: 14 Feb 2012 07:56PM »
agapanthus,

There is another option which has less potential but might be fairer and better. Stay on contributions based ESA, and keep getting the National Insurance Stamp paid for you, and at the same time see how the hat making business goes.

The Permitted Work rules

Under the Permitted Work rules you can:

 -  work for less than 16 hours a week on average, with earnings up to £97.50 a week for 52 weeks

This way you can test the hat business and your ESA claim wont lapse. Remember that people can end up losing option for contribution based ESA if they stop claiming and try to start again because ones there has been a time gap the contributions based benefit is based on the contributions you made recently and not in the past.

Welcome to Ouch Too >magicfairy<

Sofie

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Re: Self employment - tax credits
« Reply #14 on: 14 Feb 2012 09:32PM »
If you do what Sunshine says, any income based benefits will be affected.