Working Tax Credit - self employed BEWARE!

DemiDee

The self employed who work on a commission by commission basis need to be aware of the ambiguous wording relating to claims for Working Tax Credits, which says that 'work done in anticipation of payment' qualifies for the 30 hour element necessary to claim.

In fact, the 30 hours CANNOT include ANY work done in 'anticipation of payment' if you do not have a contract. Therefore, if you are a freelance writer, for example, you cannot count sourcing case studies, conducting and transcribing interviews or pitching stories as a part of your 30 hours, in spite of the fact that such attempts to procure a commission in such fields take much longer than doing the work itself, and in spite of the fact that those employed in such fields WOULD be able to count the same work as part of their job.

So, no contract, no tax credits. It sucks, huh? Especially for those who take 'in anticipation of payment' to mean exactly that.

BigAunty

Link to the HMRC regulation, please, as it pertains to the requirement to have a contract?

Yes, the WTC HMRC website does make clear that people are supposed to bill their time for renumerative work.

There are certainly self employed people who have posted that they've come a cropper in compliance reviews because they've been unable to prove the time spent on actual business activities or had a dispute whether their time was spent on renumerative work. For example, someone who spent many hours in a live support role for an ecommerce site that, I kid you not, only sold 3 items in a year...

But if there wasn't tax credits, freelancers would also ignore the time spent on trying to secure work as it has no intrinsic value at the time, it's a mere fishing expedition and I think the 'anticipation' ought to be one that will be realistically satisfied, not just hoped for.

DemiDee

BigAunty wrote: »

I think the 'anticipation' ought to be one that will be realistically satisfied, not just hoped for.

I have to agree, but unfortunately when one is self employed and working towards having contracts, pitches, proposals accepted then it is difficult to distinguish between what is hoped for and what is procured.

If there is a stipulation that work done must be preceded by a contractual promise of payment then this should be better stipulated by HMRC rather than the ambiguous 'work done in anticipation of payment' which clearly leaves many low paid self employed people who genuinely seek to procure work open to having tax credits removed and backdated.

doodoot

OP, can you please post a link to where you saw this information regarding needing a contract?

Or did someone at HMRC tell you this?

And yes BigAunty I also remember the 'sold 3 things this year' guy. :rotfl:

BigAunty

doodoot wrote: »

...

And yes BigAunty I also remember the 'sold 3 things this year' guy. :rotfl:

I do believe that he flogged his guts out designing the site and provided the huge number of hours on live support as he outlined but without the prop of tax credits, council tax benefit and housing benefit, his business should have died a natural death years before, so too the lady who sells a handful of books on ebay, the child minder who earned £2 an hour, the guy who made things from donated material and sold them at boot fayres and the graphic designer who couldn't seem to secure any clients.

The rush by the government to massage the true unemployment figures by encouraging over 200,000 couples with kids to have one part time job between them, and the way it has encouraged those who have no entreprenurial skill into self employment is breathtaking.

Would love to know how many self employed tax credit claimants earn the National Minimum Wage and how many have built up their business to come off benefits completely and then actually recruit employees to it.

Sixer

DemiDee wrote: »

The self employed who work on a commission by commission basis need to be aware of the ambiguous wording relating to claims for Working Tax Credits, which says that 'work done in anticipation of payment' qualifies for the 30 hour element necessary to claim.

In fact, the 30 hours CANNOT include ANY work done in 'anticipation of payment' if you do not have a contract. Therefore, if you are a freelance writer, for example, you cannot count sourcing case studies, conducting and transcribing interviews or pitching stories as a part of your 30 hours, in spite of the fact that such attempts to procure a commission in such fields take much longer than doing the work itself, and in spite of the fact that those employed in such fields WOULD be able to count the same work as part of their job.

So, no contract, no tax credits. It sucks, huh? Especially for those who take 'in anticipation of payment' to mean exactly that.

My understanding of the expectation of payment conditions is that you must have secured at least one (but better more) client BEFORE you can count quoting or pitching as hours worked in regards to tax credit claims.

However, if you have an established business with an established turnover, then quoting and pitching will be part of the necessary work for the business and can be counted.

The following notes from the HMRC manual are pretty clear, I think: you can't count setting up a business as work in expectation of payment, but established self-employed earners (eg writers) can count quoting and pitching.

http://www.hmrc.gov.uk/manuals/tcmanual/TCM0126260.htm

http://www.hmrc.gov.uk/manuals/tctmanual/tctm02411.htm

http://www.hmrc.gov.uk/manuals/tctmanual/TCTM02453.htm

DemiDee

Sixer, those links are very interesting - thank you.

Doodoot, I was given this information over the phone by the Inland Revenue themselves, that one has to be contracted for it to be deemed 'in anticipation of payment'. Even for established writers, they need to have a contract with a publisher or a commission before any work done would be considered as 'in anticipation of payment.'

The 'three things sold this year' guy is a good example of how tax credits can be abused, and why the definition of 'work in anticipation' needs to be made much clearer for all concerned. Whilst people like this will abuse the tax credit system, there are many other sincere self employed people working hard to prucure and sustain work and finding that they are penalised due to all the hours invested in procuring contracts being ineligible for WTC.

Sixer

DemiDee wrote: »

Sixer, those links are very interesting - thank you.

Doodoot, I was given this information over the phone by the Inland Revenue themselves, that one has to be contracted for it to be deemed 'in anticipation of payment'. Even for established writers, they need to have a contract with a publisher or a commission before any work done would be considered as 'in anticipation of payment.'

The 'three things sold this year' guy is a good example of how tax credits can be abused, and why the definition of 'work in anticipation' needs to be made much clearer for all concerned. Whilst people like this will abuse the tax credit system, there are many other sincere self employed people working hard to prucure and sustain work and finding that they are penalised due to all the hours invested in procuring contracts being ineligible for WTC.

I agree that HMRC's "rules" are opaque and the advice given by its employees is often presented as belt and braces when in fact it is not and some people have good grounds to appeal their decisions. I also agree this disadvantages small businesses and the self-employed - anyone who can't afford experts to represent them.

However - and I don't in the least intend these remarks as personal to your situation, DemiDee, they're general observations based on many threads on this forum over a period of time - it does seem to me that HMRC aren't hammering vast swathes of self-employed people unfairly and regardless. A very specific subset of people seem to be targeted. To whit, those who:

* are the single earner in their household
* report very low profits but high hours - usually less than NMW for equivalent employed hours
* combine these low profits with a WTC 30-hour claim

So it's clear that HMRC's risk assessments are attempting to combat abuses of the tax credit system. This isn't unreasonable. People in this situation should consider lifting themselves out of HMRC's perceived risk groups in any way they can: the odd shift at a shop or pub; signing up for some mystery shopping to bring money in; signing up for survey companies; anything to lift themselves up to an income equivalent to 30 hours x NMW. That way, HMRC are much less likely to come calling with unfavourable status decisions.

uponahill

DemiDee wrote: »

The self employed who work on a commission by commission basis need to be aware of the ambiguous wording relating to claims for Working Tax Credits, which says that 'work done in anticipation of payment' qualifies for the 30 hour element necessary to claim.

In fact, the 30 hours CANNOT include ANY work done in 'anticipation of payment' if you do not have a contract. Therefore, if you are a freelance writer, for example, you cannot count sourcing case studies, conducting and transcribing interviews or pitching stories as a part of your 30 hours, in spite of the fact that such attempts to procure a commission in such fields take much longer than doing the work itself, and in spite of the fact that those employed in such fields WOULD be able to count the same work as part of their job.

So, no contract, no tax credits. It sucks, huh? Especially for those who take 'in anticipation of payment' to mean exactly that.

Sorry but I feel that you are spitting hairs!

If you spend say 80% of your time researching maybe a question of law, or methods of operation, and only 20% actually 'working' - all of that time is part and parcel of the business. Time spent canvassing, doing the book keeping, anything that is business related is allowed.

As for a contract - it is not neccessary to have a contract. The simple way of looking at it is - the work you do - is it relevant to the business, will it help the business, and is there anticipation that income will be generated from that work.

When I do some work, it might mean that I have to spend 75% of my time researching answers and court decisions. Only 25% is time actually working in providing a report. I only bill on the time actually spent. The other 75% is treated as non billable costs.