If I move from employee to self employed what happens to tax credits?

TreacleTracy

Hi, I'd just like to throw this one out there please....
I am currently an employee to 2 companies part time, and am thinking about buying a shop business.... just wondering how tax credits will change and will they stop? I am a single mother and unsure if I do the change just how it will affect me?!
Thanks

TreacleTracy

I expect minimal income to start with so I guess I should expect tax credits to drop :-( Maybe I need to rethink - I hadn't even taken this into account!

TreacleTracy

Yes I will be doing over 16 - I currently work around 30 hours a week

TreacleTracy

Last year I earnt 9K, and this year I would expect to earn gross profit around 12K though then rent, rates, utilities etc I expect most of that to be swallowed up. I know turning a business around in the first year will be hard going...., just wondering if I dare take the chance.

arcon5

The act of going PAYE to self employed doesn't really affect it - it's still only if income goes up or down. If you estimate your income and the change is more than £2500 (downwards) they may even go up.

BUT...

Self employment is a bit of a trap... you pay class 2 & 4 NICs instead of class 1. JSA is split in to two parts - one part based on household income and other based on contributions - contributions being class 1 contributions so most SE people won't get that. If you have a partner working you may not even get the other aspect.
So be careful diving in to self employment without proper advice. In fact do not even get in to the world of business without proper advice and guidance - especially here where you are taking on a commercial lease! They are a damn mine field and can be impossible to exit early - even if you go bust! I know because I was in that situation and the net result for me was bankruptcy!!
If you do it then consider forming a Ltd company and paying yourself under PAYE - this will solve the NIC issue, but LLs may seek personal guarantees, as well as some suppliers etc.

You say you are reconsidering because tax credits may go down - if your finance are this tight and inflexible it would suggest you are not in a position financially to be taking massive risks like going in to business in premises. You really need enough money to bankroll you for at least a year.

Sweet shops particularly have massive swings. A lot of people seem to see them as easy for some reason - they always pop up and close down in my area. Don't ever underestimate it.

As an aside, you'll probably get small business relief on the business rates. And don't forget to account for other things, insurance, fixtures and fittings, building repairs (depending on whether it's a FR&I lease or internal only - in my experience, most are pushed on to the former - again a massive risk potentially requiring passive spending!!!). There's more than just rent rates & utilities.