What does “Reasonable expectation of profit” mean for self employed tax credits ?

lanza

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 program me.

The work program me advised me I can sign off currently even while the business is in a startup phase with no serious customers, turnover and definitely no profit. They say this will work and I will be able to cover living costs while I figure out how to make a profit, because I can claim Tax credits as a self employed person with low earnings. This appears correct in that the HMRC don’t check much about you when you apply, at least initially.

However it appears HMRC could decide on checking the business later that I did not initially have “reasonable expectation to make a profit” to begin with. Or this can also apply later on depending upon say a change in business conditions. So I could then have to pay back the tax credits. They can assess this based on say feasibility of the business plan, or other criteria which are not clear, but maybe somebody here knows more about. There is not much on their criteria available online. I could only find a cached copy from last year. This appears to be for HMRC decision makers to use.

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

BIM75710 - Computing the amount to assess: trade losses - restriction of relief: trade losses - uncommercial trades - not with a view to the realisation of profit

“You (the HMRC assessor) may be able to show that there is no possibility of profit ever regardless of however long the trade is carried on, so the expectation of profit is unfounded, by closely examining any business plan, profits projection or whatever is provided as the basis for the trader’s expectations of profit. You are justified in pointing to past results when considering whether the trader’s expectation of profit is reasonable. Where there has been a change in the way the trade is carried on”

Does anybody have actual experience or examples of this criteria ? I have been on the phone to HMRC and still no closer to an answer to what defines a feasible business with reasonable expectations for profit.

I am located in Scotland if that makes any difference.

Thanks for your information

rogerblack

lanza wrote: »

The work program me advised me I can sign off currently even while the business is in a startup phase with no serious customers, turnover and definitely no profit. They say this will work and I will be able to cover living costs while I figure out how to make a profit, because I can claim Tax credits as a self employed person with low earnings. This appears correct in that the HMRC don’t check much about you when you apply, at least initially.

They are in principle somewhat correct.
Be aware however that the work program provider gets paid a very significant amount if you (as a person on ESA) stops claiming ESA and goes into self employment.

lanza

rogerblack wrote: »

They are in principle somewhat correct.
Be aware however that the work program provider gets paid a very significant amount if you (as a person on ESA) stops claiming ESA and goes into self employment.

I know .. I feel like I have big meaty price target on my head !

They do have performance standards before they get paid. In my case they said its 13 weeks of sustaining the self employment. seems like long enough to get into the wrong tax credit and not know at the time.

lanza

blondebubbles wrote: »

BIM is the guidance for business income (for SA or CT purposes) and not tax credits. I'm unsure if tax credits would refer to this as they have their own guidance.

Tax credits own guidance on work in expectation of payment here - http://www.hmrc.gov.uk/manuals/tctmanual/tctm02411.htm

However if you are unlikely to make a profit due to being off sick then this is easily explained and you can continue to claim for up to 28 weeks providing you meet this guidance - http://www.hmrc.gov.uk/manuals/tctmanual/TCTM02421.htm

thanks ! Work done in expectation of payment seems a lot simpler and easier going than the decision maker criteria which I cited above. It sounds similar to what housing benefit told me about being self employed and not earning profit. This is from your link.

"Work done setting a business up is not generally classed as being done in expectation of payment. A person will only reasonably expect to be paid for work done once the business is up and running"

Maybe the document i citied does not apply here. But it does seem what you linked to is far too lax, as anybody could mess around, open a few trade accounts etc and make claims. There has to be a line drawn somewhere for assessing activity. So just trying to figure what that is, and if what I am doing now, or trying to fits that criteria. If it doesnt there are other options while i develop the business further, and for sure I dont want to end up in debt paying back tax credits.

rogerblack

lanza wrote: »

thanks ! Work done in expectation of payment seems a lot simpler and easier going than the decision maker criteria which I cited above. It sounds similar to what housing benefit told me about being self employed and not earning profit. This is from your link..

As a general rule, while in principle there may be guidance on your business type, it is very rare that it will explicitly match yours. It is unfortunately not rare for decisions to initially not take into account of all the guidance, and appeals are at best slow.
If you can do the work as permitted work - do not dream of signing off ESA.
Build the business on ESA - unless you no longer fit the criteria.
Being unable to work is not one of the criteria.

lanza

rogerblack wrote: »

As a general rule, while in principle there may be guidance on your business type, it is very rare that it will explicitly match yours. It is unfortunately not rare for decisions to initially not take into account of all the guidance, and appeals are at best slow.
If you can do the work as permitted work - do not dream of signing off ESA.
Build the business on ESA - unless you no longer fit the criteria.
Being unable to work is not one of the criteria.

The work program want me of the permitted work ASAP as signing clients off is how they survive as a business and also for the advisors i think its part of their performance indicators which helps keep them employed. No doubt they want to help, but being pushed into a complex self employed tax credits with a non functional business gives me mixed feelings.

I think I need at least over the winter to make this business project something HMRC would recognize.. although maybe its ok as it is.. I am still not clear what their criteria is after 4 calls to them !

Are there are anybody who can judge this here ? I can state what I do and see what you think.

lanza

ITs ok.. answer is in here !

http://www.hmrc.gov.uk/manuals/ccmmanual/CCM6750.htm

"if the person is still developing the idea for example, they are undertaking the activity by have no clients or customers, then there is no element of remunerative work."

OK.. so the work program are basically mis-advising me it looks like.. or I am not sure I will need to recheck the records of what they advised me. It "seemed" like it was always me making the point that I surely ought to have a reasonable customer base (even some) before signing off.

Icequeen99

lanza wrote: »

ITs ok.. answer is in here !

http://www.hmrc.gov.uk/manuals/ccmmanual/CCM6750.htm

"if the person is still developing the idea for example, they are undertaking the activity by have no clients or customers, then there is no element of remunerative work."

OK.. so the work program are basically mis-advising me it looks like.. or I am not sure I will need to recheck the records of what they advised me. It "seemed" like it was always me making the point that I surely ought to have a reasonable customer base (even some) before signing off.

But remember that that is HMRC's interpretation and I have been involved in at least a dozen self-employed appeals where HMRC's decision has been overturned.

For example in one case HMRC said that because the person had not sold anything from his EBAY shop he wasn't in remunerative work because he had no clients or customers - but we won at tribunal by arguing against that.

If you are purely in the development stage and therefore cannot make any sales/provide any services then I agree it won't be remunerative work - but if you are actually offering something for sale/offering a service and just happen not to have any takers then I would argue you are in remunerative work as that is in expectation of payment.

IQ

lanza

Icequeen99 wrote: »

But remember that that is HMRC's interpretation and I have been involved in at least a dozen self-employed appeals where HMRC's decision has been overturned.

For example in one case HMRC said that because the person had not sold anything from his EBAY shop he wasn't in remunerative work because he had no clients or customers - but we won at tribunal by arguing against that.

If you are purely in the development stage and therefore cannot make any sales/provide any services then I agree it won't be remunerative work - but if you are actually offering something for sale/offering a service and just happen not to have any takers then I would argue you are in remunerative work as that is in expectation of payment.

IQ

thanks, good to know that distinction exists. I dont went to end up in that appeals process unless there are no options. At the end of the day if I dont have clients, i do not have reasonable expectations for profit by my standards so i doubt i can convince anybody else I do.

There are the permitted work option for now, so I will use that, when I hit on the right products and the income looks like it will breach permitted work limits, I can make the transition and sign off.

Warning to others..its very competitive online, you might even dream about enjoying an office job !