Going Self Employed + Working Tax Credits

gohan2091

I'm 26, and currently living with my grandparents. I've been on Job Seekers Allowance for 2 years without success. Last month, I attended an interview for a 15 hour a week administration post. They are contacting my references and are looking for office space but I should be working within the next few months. The job pays about £95 a week (£23 more than JSA).

I have to meet up with my work provider ‘Ingeus’ every couple of weeks. My new advisor recommends I go self-employed, alongside the 15 hours a week administration job. He says if I do freelance work for at least 15 hours a week, I would be eligible for working tax credits which pays £50 a week. We were talking about what I could do, and I have some ideas of offering a computer repair service, online selling, photography and graphic design work.

From what I understand, I would earn £95 a week from the administration job, receive £50 a week from working tax credits, as well as anything I earn from freelancing. I'm also planning to move into a 3 bedroom rented house with 2 friends (who work 25 hours a week part-time) before the spring and splitting the house three ways. I’m posting here for advice. I’m not experienced with things like this and I would be grateful to hear comments from more experienced and wiser people than myself.

Here are my questions:

1. Have I understood the above correctly?
2. Would I be eligible for housing benefit? and would I have to pay council tax?
3. It’s my understanding that I have to fill out an annual tax form, showing my earnings and hours worked. Is this difficult to do?
4. What other things would I have to do that I am not aware of?

Thanks

UsetheFORCE

gohan2091 wrote: »

I'm 26, and currently living with my grandparents. I've been on Job Seekers Allowance for 2 years without success. Last month, I attended an interview for a 15 hour a week administration post. They are contacting my references and are looking for office space but I should be working within the next few months. The job pays about £95 a week (£23 more than JSA).

I have to meet up with my work provider ‘Ingeus’ every couple of weeks. My new advisor recommends I go self-employed, alongside the 15 hours a week administration job. He says if I do freelance work for at least 15 hours a week, I would be eligible for working tax credits which pays £50 a week. We were talking about what I could do, and I have some ideas of offering a computer repair service, online selling, photography and graphic design work.

From what I understand, I would earn £95 a week from the administration job, receive £50 a week from working tax credits, as well as anything I earn from freelancing. I'm also planning to move into a 3 bedroom rented house with 2 friends (who work 25 hours a week part-time) before the spring and splitting the house three ways. I’m posting here for advice. I’m not experienced with things like this and I would be grateful to hear comments from more experienced and wiser people than myself.

Here are my questions:

1. Have I understood the above correctly?
2. Would I be eligible for housing benefit? and would I have to pay council tax?
3. It’s my understanding that I have to fill out an annual tax form, showing my earnings and hours worked. Is this difficult to do?
4. What other things would I have to do that I am not aware of?

Thanks

1. Yes, not sure you'll get £50 a week though, seems high unless your s/e income is going to be sub NMW. Remeber WTC is based on LAST years taxable income which if you were unemployed for the entire year would give you a income of 0, HOWEVER they use the CURRENT years income to finalise the award so you may get WTC you are not entitled to and have to pay it back!

2. Again, depends upon income...maybe, CTB likewise.

3. Register online, no it's not assuming your affairs aren't that complex.

4. Good question...

cheekyfunkster

UsetheFORCE wrote: »

1. Yes, not sure you'll get £50 a week though, seems high unless your s/e income is going to be sub NMW. Remeber WTC is based on LAST years taxable income which if you were unemployed for the entire year would give you a income of 0, HOWEVER they use the CURRENT years income to finalise the award so you may get WTC you are not entitled to and have to pay it back!

Sorry can you please clarify the above? If a person has been on JSA and launches a new business or goes freelance before 5 April 2013 and therefore off JSA but the income for last tax year is low does this mean they arent elligible for WTX unless they are also working part-time bringing in some £ through employment? Is this a question that the tax office can answer - similar situation.... thanks

gohan2091

Since JSA is taxable, doesn't that count as income? When I spoke to my advisor, he said he has recommended his clients go self employed with working tax credits for a while now and no one has returned to him with problems. These are people who have been on JSA for a good while like me.

Caz3121

some info on tax credits here
http://www.hmrc.gov.uk/taxcredits/start/who-qualifies/workingtaxcredit/work.htm

note: If you're self-employed, paid work means any work you do for payment (or would expect to be paid) or profit.

There is a lot of cases of people being asked to provide evidence of their self employed activity to tax credits (to avoid people saying they are working 15 hours self employed but not earning anything to get the extra payment) so make sure you keep a detailed diary of all the work that you are doing ready if they were to ask

gohan2091

@Caz3121,

Do you have any recommendations on how I would keep a diary? I think in a spreadsheet would be a good way but how would I structure it? Have an Incoming colum for my freelance work, a separate income column for my PAYE work and then an outgoing column for costs towards my freelance work? That would cover the money side of showing proof for working tax credits, but how would I show time?

BigAunty

gohan2091 wrote: »

....My new advisor recommends I go self-employed, alongside the 15 hours a week administration job. He says if I do freelance work for at least 15 hours a week, I ...

From what I understand, I would earn £95 a week from the administration job, receive £50 a week from working tax credits, as well as anything I earn from freelancing.

You can model various income scenarios in the Turn2us online benefit calculator which will indicate any WTC, HB, council tax discount.

Make sure you've been advised of the risks and future changes.

As previously indicated, some self employed in receipt of WTC have failed HMRC compliance checks - see if you can uncover the historic threads on these in this forum, or other places.

Some don't seem to realise that it's not enough to be 'busy' for x hours but need spend this on activities with an expectation, not just wishful thinking, of receiving payment. For example, they spend a lot of time on website maintenance, admin and and so on and insist they've met their quota in terms of hours to qualify for WTC but have virtually no customers or make very few sales so the HMRC simply scoff at their 'workload' and make them pay back years of WTC.

So read up on the actual terms for receiving WTC, how to keep good records and see if you can find info posted by those who have gone through the compliance procedure.

Also, do look into the Universal Credit system as it will treat the self employed much more differently, precisely because the govt are sick of people cruising for years on benefits by running unprofitable micro/hobby businesses, incentivised by the fact that they are rewarded with benefits for being rubbish at generating income. It will expect that the self employed can at least earn the National Minimum Wage from their businesses.

If you are under 30, look into the Princes Trust or similar organisations that help young people into business and will help with loans, mentoring, drawing up a business plan.

You need to be very professional in planning and preparing for your self employment - the days of just sticking up a few cards in newsagent windows to get WTC/HB, etc, are drawing to an end and if your advisor doesn't know this, then don't let his complacency cause you hassle further down the line.

In fact, ask him about how UC affects the SE - if he doesn't know, you know he's ignorant in matters of Self Employment and benefit claims.

cheekyfunkster

What if you become self employed very early i.e before April 2013 but have or expect to get little before this tax year? What kind of evidence is needed as I thought WTC were estimated on income not hours?

UsetheFORCE

gohan2091 wrote: »

Since JSA is taxable, doesn't that count as income? When I spoke to my advisor, he said he has recommended his clients go self employed with working tax credits for a while now and no one has returned to him with problems. These are people who have been on JSA for a good while like me.

JSA is classed as income for INCOME TAX purposes although it is NOT classed as income for TAX CREDIT purposes.

UsetheFORCE

cheekyfunkster wrote: »

What if you become self employed very early i.e before April 2013 but have or expect to get little before this tax year? What kind of evidence is needed as I thought WTC were estimated on income not hours? I am assuming you need to claim WTC in order to get HB but that isn't automatic....
Can someone please explain any of the following:
1) Can you claim housing benefit if you work part-time ie less than 25 hours or is it not income dependent?
2) If you are working part-time and also launching a business as a sole trader but are very newly self employed providing the part time job is 3 days a week so 21+ hours can you get WTC? If you aren't sure that it will meet NMW before the end of this tax year - in principle it should do by mid summer but may take 3m to really kick off - what is the best thing to do in terms of housing benefit support and/or wtc? I dont particularly wish to claim benefits but having now been out of permanent fulltime work and fed up with the job hunt believe the only viable way forward for me is to accept a part-time job and start something myself - the one is an online business sole trader consultancy the other more a digital media startup which would entail a while team and prob LLP or Ltd structure so different kettle of fish. I dont have family to live with in London and need to be here to successfully build the whole team/network with investors etc (I have worked in a very large US tech startup so with the right team and MVP feel could have a reasonable chance of succeeding) and also need to be here to get clients if pursuing the other sole trader project - neither however are likely to generate revenue for a while and am confused as to how I can get some sort of support towards my rent whilst I also do another job that pays part-time to manage. Thoughts? I have jsut turned 31 so Princes Trust not applicable, thanks

Answers:

1) HB and CTB are paid based on income, you can have NO income and get HB however they will question how you are living.

2) Assuming you are single, you might qualify for WTC based on your income provided that in total you work 30+ hours a week.
If Self Employed, at the moment under Tax Credits, you do NOT need to be earning the equivalent of the NMW.


If you do receive Tax Credits, remember that supposedly from October, you would have to claim Universal Credit which will have a NMW equivalent assumed income although the minimum hours requirement will disappear.

Caz3121

cheekyfunkster wrote: »

What if you become self employed very early i.e before April 2013 but have or expect to get little before this tax year? What kind of evidence is needed as I thought WTC were estimated on income not hours? I am assuming you need to claim WTC in order to get HB but that isn't automatic....
You do not need to receive WTC to get HB - HB can be claimed by those not working, those working part time and those working full time. Whether there will be any housing benefit payable will depend on the indidividuals circumstances and income

Can someone please explain any of the following:
1) Can you claim housing benefit if you work part-time ie less than 25 hours or is it not income dependent?
As above there is no hours restriction to housing benefit.
Likewise there could be 2 people that have the same circumstances and income but live in different areas - one may get some housing benefit but the other could get nothing

2) If you are working part-time and also launching a business as a sole trader but are very newly self employed providing the part time job is 3 days a week so 21+ hours can you get WTC? If you aren't sure that it will meet NMW before the end of this tax year - in principle it should do by mid summer but may take 3m to really kick off - what is the best thing to do in terms of housing benefit support and/or wtc? I dont particularly wish to claim benefits but having now been out of permanent fulltime work and fed up with the job hunt believe the only viable way forward for me is to accept a part-time job and start something myself - the one is an online business sole trader consultancy the other more a digital media startup which would entail a while team and prob LLP or Ltd structure so different kettle of fish. I dont have family to live with in London and need to be here to successfully build the whole team/network with investors etc (I have worked in a very large US tech startup so with the right team and MVP feel could have a reasonable chance of succeeding) and also need to be here to get clients if pursuing the other sole trader project - neither however are likely to generate revenue for a while and am confused as to how I can get some sort of support towards my rent whilst I also do another job that pays part-time to manage. Thoughts? I have jsut turned 31 so Princes Trust not applicable, thanks

To claim WTC as a single person you need to work over 30 hours per week. If you are a single parent or have a disability then this is 16 hours per week.
Your self employed hours 'setting up' are unlikely to be counted as working hours in expectation of payment - see the post above yours from BigAunty

If you are single, in private rented you need to know the LHA for shared accommodation for your area (irrespective of the size of property you live in) the you can do some modelling on http://www.turn2us.org.uk/ to see if you would get any help on your part time wage - (it will ask for your weekly LHA)