Self-employed

Coronavirus: Tax Credits - Self-Employed

Tax Credits - Self-Employed

Already getting Tax Credits?

Someone who is currently in receipt of Tax Credits may be able to stay on those benefits, but could be better off if they claim Universal Credit if eligible – they should seek advice from a Benefits Adviser who will be able to conduct a better off calculation.

Self-Isolating / Unable to work due to health issues

Where someone is unable to work due to health issues then they are treated as working their normal hours for up to 28 weeks - click here for more information.

Hours Dropped?

Entitlement to Working Tax Credit normally depends on the claimant normally working a certain number of hours.

Where someone's hours have dropped then whether they stay on Tax Credits or not will usually depend on whether they are still working the required hours to be entitled and how long the drop in hours is expected to last.

Normally......

Where the drop is going to be less than 4 weeks, then WTC can continue.

Where the drop is going to be more than 4 weeks then WTC will end after that 4 week period - due to the 4 week run-on.

However.....

HMRC has announced that people temporarily working reduced (or no) hours due to coronavirus, or who are being furloughed, will not see a change in their Tax Credit payments - so long as they are still employed or self-employed - as they will be treated as working their normal hours until the Job Retention Scheme and Self-Employment Income Support Scheme end in October, even if they are not using either scheme. They do not need to contact HMRC about this change.

This is a temporary measure to ease the pressure on the number of new UC claims and to make things easier for everybody.

Closing the business

Where a self-employed Tax Credit claimant decides to close their business permanently, then they will need to report this to HMRC as this is not a temporary change.

They will be entitled to the 4 week run-on (see below). Once the WTC has ended (ie after the 4-week run-on) they would need to think about claiming Universal Credit.

They might want to consider whether they could be better off claiming Universal Credit sooner ie rather than after the 4 week on (eg if they have rent to pay and they are not getting any Housing Benefit).

Every situation is different – it is best to speak to a benefits adviser.

REMEMBER: Where someone is getting Child Tax Credit, then they can add an award of Working Tax Credit to that at any time.

NOTE: Where someone decides to close their business they will not be entitled to a grant from the Self Employed Income Support Scheme.

4 week run-on

There is a special rule that says WTC can run on for 4 weeks when someone stops work, or their hours are reduced below the number required for WTC.

Even though someone's earnings have dropped they will not see in increase in their Tax Credits during the 4 weeks ie the Tax Credit award will remain the same.

What about Child Tax Credit?

Child Tax Credit is not dependent upon hours worked. So someone's whose income has dropped can stay on Child Tax Credit.

Will Tax Credits increase if earnings drop?

If the claimant remains entitled to Working Tax Credit then their award can only be increased if the claimant’s annual income reduces by £2,500 or more. Most self-employed people will be receiving a grant - probably sometime in August - from the second tranche of the Self Employment Support Scheme. This will be classed as self-employed income. Therefore any estimated income from the 2020/21 tax year will need to include this payment. The same applies to thoe who received a payment from the first tranche of the SEISS.

What about paying the rent?

Anyone who already gets some Housing Benefit should let the HB Office know about the drop in income, as their HB should increase due to the drop in earnings.

Tax Credit claimants who are not already on Housing Benefit will not be able to make a new claim for HB. Instead, if someone is struggling to pay their rent, they might think about Universal Credit. But note that once on UC, Tax Credits will end. Some people are worse off financially on UC. So they should speak to a benefits adviser to get a better off calculation.

Other Help

If they are not already receiving Council Tax Support they should make a claim as soon as possible from their Local Authority.

If they have school age children they may now be entitled to free school meals.

Not currently getting any means-tested benefits?

They will not be able to make a new claim for Tax Credits (unless they fail the SDP Gateway (NOTE: the SDP Gateway no longer applies - it was revoked from 27th January 2021)).

As long as they meet the general eligibility criteria for UC then they can make a claim for it - click here.

Frequently Asked Questions

I’m a self-employed physiotherapist. I live with my partner and 3 children in a rented property. The majority of my customers have cancelled their bookings due to the Coronavirus outbreak and I can’t see that I’ll have much work in the coming weeks.

My partner does not work and we don’t have any savings. We do get some Working Tax Credit and Child Tax Credit.

You may* be entitled to a lump sum grant payment from the Self-Employed Income Support Scheme, this will be paid sometime in May.

Even though you are no longer working the required number of hours for WTC, your WTC can continue – this is a temporary exception to the main rules that normally apply.

However, if you are going to struggle financially you may be better off on Universal Credit - especially if you have rent to pay and are not currently getting any Housing Benefit.
If you are expecting to receive a payment from the Self Employment Income Support Scheme, then you you may be better off waiting until you receive this payment before you make your claim - seek advice from a benefits adviser.

If you do claim UC, then your Tax Credits will end straight away (ie no run-on).

You will be able to apply for an Advance Payment to tide you over until your first UC payment- and you can apply online. But this will be recovered from your on-going payments.

Your work coach can use their discretion not to apply the Minimum Income Floor as your work has been affected by the Coronavirus outbreak. So for the duration of the Coronavirus outbreak, your UC payments should be based on your actual takings (or no takings) even if you have been trading for 12 months or more.

*NOTE: If you have set yourself up as a Director of a business, then you will not be entitled to a payment from that scheme. You may wish to consider - if you are not going to have any customers for a period of 3 weeks or more - registering yourself as a 'furloughed worker'. At the moment, you can stay on your WTC - even though you are not actually working due to being furloughed.
Although you may be better off on Universal Credit - seek advice from a benefits adviser.

I’m a single parent with two children. I’m a self-employed delivery driver. I currently get Working Tax Credit, Child Tax and a small amount of Housing Benefit.

My income has increased. What should I do?

You should notify both HMRC and the HB Office. It is likely that your Tax Credit award will reduce and your HB award could stop altogether.

Should your income drop again in the future, then let HMRC know and they may be able to reassess your award. But you will not be able to make a new claim for Housing Benefit, so at that point you may be better claiming Universal Credit – but get advice first.

Contact

01756 796394
info@housingsystems.co.uk
Housing Systems, Archway Court, Broughton Hall, Broughton, Skipton BD23 3AE

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