Anybody self employed (UK) claimed Disabled Worker Tax Credit Element ?

lanza

I am interested in information from anybody here who has signed of ESA (or similar), started a business and received tax credit, specifically the “Disabled Worker Element” (DWE). If they were not running at a profit while they did this that would be even better.

I suffered a relapse from a previous psychological condition (OCD) so currently have started a minor ebay shop (science supplies) under supported permitted work while on the work programme. Supported permitted work limits the shop size as it’s only intended to be a stepping stone. The next step from here to make a profit anywhere near that of covering costs and earning an independent wage means leaving ESA and upping the amount of trading to a full ebay business shop.

Specifically the work programme (I am on) advised me I can sign off currently even while the business has no profit ! They say this will work and I will be able to cover living costs because I can claim Tax credits that include a Disabled Worker Element (DWE). This is primarily because I fulfilled these criteria.

1. 16 hours plus work
2. Have a Disability that puts me at a disadvantage in getting a job
3. Receive ESA.
4. Have a prospective startup business (even if not in profit)

The work program proposal is that the transition from ESA + Housing benefit will be seamless (relatively) as I move to Tax credits (Basic element + Disabled worker element) + Housing benefit. They base this proposal on the number of their clients in similar positions who signed off and claimed DWE. I have some concerns over what they say (perhaps I am not justified) as the work programme advisors career performance is primarily dependent on signing clients off and to what degree clients longer term outcomes matters to their career outcomes is not clear.

So this is why I am seeking any experiences of this process from anybody here who has started a business and received tax credit Disabled Worker Element (DWE). Specifically even while they were not running at a profit would be even better an insight.

Just anything you know. i.e. Did the transition go as planned or not. If it went OK was there a problem later on ?

I am located in Scotland if that makes any difference.

Thanks for your information

lanza

blondebubbles wrote: »

I don't personally claim however have experience in tax credits.

Claiming the disability element in itself it's not difficult as the criteria is pretty clear (although does appear to be easier to claim if on DLA/PIP)

What can be difficult to prove with self employment is that you are working the required number of hours and that you are working the required hours in expectation of payment.

Tax credits are looking more and more into the self employed who year in year out do not make a profit.

There is information here that goes into detail -

http://www.hmrc.gov.uk/manuals/tcmanual/TCM0126220.htm
http://www.hmrc.gov.uk/manuals/tcmanual/TCM0126260.htm

Thanks ! thats what i thought.. there has to be some cuttoff point to be profitable enough to not need the tax credit.. but whether its one year.. or two years not clear. It needs a year at least as the first year is primarily learning where the business is, how to hold onto what business you get etc...

Ill try giving them a call on that one.

Icequeen99

lanza wrote: »

Thanks ! thats what i thought.. there has to be some cuttoff point to be profitable enough to not need the tax credit.. but whether its one year.. or two years not clear. It needs a year at least as the first year is primarily learning where the business is, how to hold onto what business you get etc...

Ill try giving them a call on that one.

Unfortunately it isn't as clear cut as that. There isn't a cut off. The test HMRC use is whether the business is trading in expectation of profit as opposed to the 'hope' of profit. I have dealt with a lot of investigations on s/e claims in the last two years and most hinge on this or as BB says proving the number of hours you are working.
You may claim and they pay you, but in two years time they can investigate and ask for it all back if they decide then you were not in 'qualifying remunerative work'.

My suggestion is to document everything. Keep a diary of hours and write down everything you do so you can show that you are meeting the hours requirements.

IQ

lanza

Icequeen99 wrote: »

Unfortunately it isn't as clear cut as that. There isn't a cut off. The test HMRC use is whether the business is trading in expectation of profit as opposed to the 'hope' of profit. I have dealt with a lot of investigations on s/e claims in the last two years and most hinge on this or as BB says proving the number of hours you are working.
You may claim and they pay you, but in two years time they can investigate and ask for it all back if they decide then you were not in 'qualifying remunerative work'.

My suggestion is to document everything. Keep a diary of hours and write down everything you do so you can show that you are meeting the hours requirements.

IQ

Thanks again for the heads up. Was going to keep a weekly activity diary anyway as part of the book-keeping.

Reading up on what you pointed out basically it boils down to.. dont expect HMRC to fund your hobbies, clearly incompetent business setups or increase the values of your capital assets. However with tax credits being hard to distinguish from benefits these days, the criteria for incompetent setups from so many non business people becoming self employed must be tougher than regular tax loss scenarios.

i.e. people without business experience who made bad decisions out of trial and error. Maybe to get around this grey area HMRC should ask we do some kind of business course with local agencies. Then we have clearer guidelines for good business practice.

In the meantime these are the links I found on these tax definitions.. if anybody else is interested.. all that was on HMRC was an old cached copy.


http://webarchive.nationalarchives.gov.uk/+/http://www.hmrc.gov.uk/manuals/bimmanual/bim75710.htm

http://www.taxation.co.uk/taxation/Articles/2013/09/11/313321/are-you-lost

http://www.hmrc.gov.uk/manuals/tctmanual/tctm02400.htm

some more from canada where it appears the distinction was invented between "trading in expectation of profit" as opposed to "the 'hope' of profit"

http://www.incometaxcanada.net/news/reasonably-expect-profit.htm

lanza

chancing my luck here with another question.. but there has been a bit of a change in how tax credits works lately (I understand) due to people not being able to repay tax credits that shouldnt have been awarded..

So the application process may be harder now ? i.e. They check reasonable expectation for profits in advance now ? Maybe a business plan ?

Icequeen99

lanza wrote: »

Thanks again for the heads up. Was going to keep a weekly activity diary anyway as part of the book-keeping.

Reading up on what you pointed out basically it boils down to.. dont expect HMRC to fund your hobbies, clearly incompetent business setups or increase the values of your capital assets. However with tax credits being hard to distinguish from benefits these days, the criteria for incompetent setups from so many non business people becoming self employed must be tougher than regular tax loss scenarios.

i.e. people without business experience who made bad decisions out of trial and error. Maybe to get around this grey area HMRC should ask we do some kind of business course with local agencies. Then we have clearer guidelines for good business practice.

In the meantime these are the links I found on these tax definitions.. if anybody else is interested.. all that was on HMRC was an old cached copy.


http://webarchive.nationalarchives.gov.uk/+/http://www.hmrc.gov.uk/manuals/bimmanual/bim75710.htm

http://www.taxation.co.uk/taxation/Articles/2013/09/11/313321/are-you-lost

http://www.hmrc.gov.uk/manuals/tctmanual/tctm02400.htm

some more from canada where it appears the distinction was invented between "trading in expectation of profit" as opposed to "the 'hope' of profit"

http://www.incometaxcanada.net/news/reasonably-expect-profit.htm

Just to say, the tax definitions have no impact whatsoever on tax credits. HMRC, in the cases I have seen at Tribunal, have used old DWP case low on the difference between 'expectation' and 'hope'.

You may be picked up for a compliance check at the start before you claim, or it may be much later. Either way, if you take steps to record everything then you should be fine.

A lot of the cases have been overturned on appeal so even if they refuse, it doesn't mean it is the end of the road, but appeals do take some time.

IQ

nashly

I claim the disability part of WTC and I am self employed doing 16 hrs a week. I cannot help on what you might get as it depends on your family circumstances and income but I may be able to help in other ways if you have a specific question.

I am located in Wales and the process was very smooth and I estimated a zero profit in my first year, I have just had my return from IR and my actual earnings were £16 per week so I was close in my original estimate, I am now being paid by WTC based on £16 per week in the 14/15 period.

lanza

nashly wrote: »

I claim the disability part of WTC and I am self employed doing 16 hrs a week. I cannot help on what you might get as it depends on your family circumstances and income but I may be able to help in other ways if you have a specific question.

I am located in Wales and the process was very smooth and I estimated a zero profit in my first year, I have just had my return from IR and my actual earnings were £16 per week so I was close in my original estimate, I am now being paid by WTC based on £16 per week in the 14/15 period.

Thanks .. good to hear. I know how hard it can be to turn any profit at all with all the complexities today.

the impression i get from talking to HMRC and also Housing benefit for being self employed.. is that they want to support people who had health problems or whatever trying to be productive. So the various criteria they have are about that. So they will guide you through minor problems here and there if you have the right direction.

What they dont want to do is support personal interests or business schemes which dont have the type of structure that leads to more independence.

vintagebrighton

Just another thing to be aware of. If you only have ESA and you relinquish it to become self employed and claim tax credits the disability element only lasts for the remainder of the tax year.... so don't give it up in March! Of course, if you're registered blind or in receipt of DLA or PIP then the disability element is awarded permanently (or as permanently as anything can be these days) HTH

Icequeen99

vintagebrighton wrote: »

Just another thing to be aware of. If you only have ESA and you relinquish it to become self employed and claim tax credits the disability element only lasts for the remainder of the tax year.... so don't give it up in March! Of course, if you're registered blind or in receipt of DLA or PIP then the disability element is awarded permanently (or as permanently as anything can be these days) HTH

That's not correct. It can continue using ESA and then entitlement to the disability element itself as qualification - you don't need DLA or PIP. Of course, this presumes you meet the disadvantage at work test, but that applies to DLA/PIP as with other qualifying benefits as well.

IQ

vintagebrighton

Icequeen99 wrote: »

That's not correct. It can continue using ESA and then entitlement to the disability element itself as qualification - you don't need DLA or PIP. Of course, this presumes you meet the disadvantage at work test, but that applies to DLA/PIP as with other qualifying benefits as well.

IQ

For initial claims only, if you haven't made a claim within the previous 2 years and the purpose of the claim is a period of 'rehabilitation' (ie moving back into work from a period of being off sick and claiming ESA) then this is correct. I don't mean to argue but it is something the OP needs to be aware of in case they only have ESA and they relinquish it in order to work. That may not be financially viable if they only receive the disability element of tax credits for the remainder of the tax year. Of course, there are other routes to claiming the disability element but the OP specifically mentioned ESA.