Guide to Working Tax Credit for the self-employed

Self-employed workers can receive Working Tax Credit (WTC), but you and your business must meet strict criteria to qualify. Our guide will help you understand whether you’re eligible and how to apply.

What is Working Tax Credit?

Working Tax Credit is a government benefit that can top up your earnings if you’re on a low income.

Am I entitled to Working Tax Credit?

Working Tax Credit eligibility depends on the number of hours you work and how much money you earn, but other factors are also taken into account.

In terms of income threshold, if you earn less than £13,100 as a single person or less than £18,000 as a couple you may be eligible for WTC, as long as you work at least 30 hours a week.

There are different rules if you’re disabled, aged 60 or over, or you have children.

How much will I get?

The basic amount of Working Tax Credit is a maximum of £1,960 per year, but if you meet certain criteria - for example if you’re a single parent or you have a disability - you may receive more.

The calculations can be quite complicated, but there’s more information on the Working Tax Credit section of the government’s website.

Working Tax Credit for the self-employed

If you’re self-employed but you’re not earning very much money, you may be able to receive Working Tax Credit.

However, recent rules have tightened up the Working Tax Credit criteria for self-employed workers.

If your business isn’t considered ‘commercial’ - i.e. it’s unlikely to make a profit or it’s more of a hobby than a serious business venture - you usually won’t be entitled to WTC.

Which self-employed workers are eligible for tax credits?

Under the rules, self-employed eligibility for Working Tax Credit depends on whether you can show you’re running your business with a view to making a profit, and if your self-employment is “structured, regular and ongoing.”

Explaining these rules, the government says: “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.”

Working Tax Credit application for the self-employed

To apply for Working Tax Credit when you’re self-employed, you’ll need to provide evidence that you’re “in a regular and organised trade, profession or vocation on a commercial basis with a view to achieving a profit.”

The evidence may include things like receipts and expenses, cash flow and profit projections and records of sales and purchases.

If your business is in early stages, this can be difficult. Instead, you may be asked to show that you have a commercial approach and you have a plan to make your business profitable. You may be able to use your business plan to prove this.

To get your application started, use the online tool on the government’s website to make sure you’re eligible, and then order a Working Tax Credit form online or by calling the Working Tax Credit number, which is 0345 300 3900. Over the phone you can request a Working Tax Credit form, tell HMRC your circumstances have changed, or ask a question.

Working Tax Credit and Universal Credit

Universal Credit is gradually replacing several existing benefits and tax credits, including Working Tax Credit. At the moment, you should still apply for WTC, but by September 2018, applicants will need to apply for Universal Credit instead.

If you’re already receiving Working Tax Credit, you’ll continue to get it for the time being, and the tax credits office will tell you when you need to move.

Once you’re on Universal Credit, the amount you receive will adjust monthly, depending on the amount you earn. For example, if you have a lower income one month, your Universal Credit payment should increase.

Have you had any experience of claiming WTC as a self-employed person? Tell us in the comments.

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