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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 (WTC) 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.

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 the claimant needs to report this to HMRC and WTC will end after that 4 week period - due to the 4 week run-on.

HMRC did put in place some temporary measures so that people who were temporarily working reduced (or no) hours due to coronavirus, or who were being furloughed, were treated as though they were still working their normal hours - so long as they were still employed or self-employed. See this page for more information..

 

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.

 

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.

They should check with a Benefits Adviser if Universal Credit would be a better option for them, rather than the Tax Credits run-on.

 

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.

Many self-employed people received grants from the Self Employment Support Scheme. The SEISS payments counted as self-employed income for Tax Credits.


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 Credits 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, 

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 run a city centre sandwich shop. My business is struggling to pick up after the lockdown, as office workers are still mostly working from home. 
I expect my earnings to be a lot lower for this year than they were last year. (I got help from the SEISS scheme, but that has now ended). I am struggling to pay my rent and bills.
I get Tax Credits, but I wonder if I could be better off on Universal Credit instead?


Even though (as you are still working the required number of hours for WTC) your WTC can continue, if you are struggling financially, it is worth checking if you could be better off on Universal Credit - especially if you have rent to pay and are not currently getting any Housing Benefit. So speak to 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.

As this would be your first claim for Universal Credit, the Minimum Income Floor rule cannot affect you until after 12 months. (If the Minimum Income Floor rule applies, UC is calculated based on the amount that you are expected to be earning rather than your actual net profit, if it is below that level.).  
You could also check if you are entitled to some Council Tax Support.
If you have school age children, check if you could get free school meals.

 

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.

 

 

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