Can DD claim WTC as a sole trader

Amanda65

Hi all

Posting on behalf of my daughter as she isn't registered on this site (silly girl, I know )

She has started a business and in August this year gave up her full time job to fully concentrate on this but obviously it is early days and financially she is struggling.

She is paying herself about £150 pm at the moment and working approximately 50 hours per week and anything else is being ploughed back into the business to buy stock, book shows for 2017 (she is designing and selling equestrian clothing and tweeds). She pays her mobile phone through the business account and her car lease, which she needs to transport stock and trade stand equipment. She currently works from home (our home) so has no premises costs.

Her accountant has said that as a sole trader she cannot claim working tax credits as anything in the business account is essentially hers and it is her choice to only draw £150 but obviously if she paid herself everything (and there's not a lot left over each month) she would have no money to trade with.

So my question is - can she claim WTC? I've been on a benefits checker ad it says she can get £53pw but there is only mention of self employment, not specifically sole trader.

TIA

Aquamania

Amanda65 wrote: »

Hi all

Posting on behalf of my daughter as she isn't registered on this site (silly girl, I know )

She has started a business and in August this year gave up her full time job to fully concentrate on this but obviously it is early days and financially she is struggling.

She is paying herself about £150 pm at the moment and working approximately 50 hours per week and anything else is being ploughed back into the business to buy stock, book shows for 2017 (she is designing and selling equestrian clothing and tweeds). She pays her mobile phone through the business account and her car lease, which she needs to transport stock and trade stand equipment. She currently works from home (our home) so has no premises costs.

Her accountant has said that as a sole trader she cannot claim working tax credits as anything in the business account is essentially hers and it is her choice to only draw £150 but obviously if she paid herself everything (and there's not a lot left over each month) she would have no money to trade with.

So my question is - can she claim WTC? I've been on a benefits checker ad it says she can get £53pw but there is only mention of self employment, not specifically sole trader.

TIA

She has an accountant.
Her accountant has provided her with the answer.
If she doesn't trust what the accountant has told her, she should sack the accountant ... then she can pay herself those expensive accountant's fees too.
(although getting an accountant she can trust would be a better idea)

Btw, I agree with the accountant.

Amanda65

Aquamania wrote: »

She has an accountant.
Her accountant has provided her with the answer.
If she doesn't trust what the accountant has told her, she should sack the accountant ... then she can pay herself those expensive accountant's fees too.
(although getting an accountant she can trust would be a better idea)

Btw, I agree with the accountant.

She does trust the accountant but I was trying to help her, did a search and came up with what seemed like some conflicting information so I thought I would ask a question and see if anyone else had any advice as occasionally professionals can be wrong!

Apologies for asking

Suarez

She can buy £10 worth of stock or £100,000 worth of stock. It won't make a difference to her profit so the fact that she chooses to draw £150 is her choice. Tax credits will want the profit figure, not drawings.

Suarez

And here is some info from HMRC...

If you’re self-employed

Some self-employed people are not eligible for Working Tax Credit. To qualify, your self-employed work must aim to make a profit. It must also be commercial, regular and organised.

This means you may not qualify if you don’t:

make a profit or have clear plans to make one
work regularly
keep business records, eg receipts and invoices
follow any regulations that apply to your work, eg having the right licence or insurance
If the average hourly profit from your self-employed work is less than the National Minimum Wage, the Tax Credit Office may ask you to provide:

business records
your business plan - find out how to write a business plan
details of the day-to-day running of your business
evidence that you’ve promoted your business, eg advertisements, flyers

https://www.gov.uk/working-tax-credit/eligibility

WHA

Suarez wrote: »

She can buy £10 worth of stock or £100,000 worth of stock. It won't make a difference to her profit so the fact that she chooses to draw £150 is her choice. Tax credits will want the profit figure, not drawings.

Which is where the waters are muddied. If she's adopted the simplified cash basis due to low turnover, she doesn't need to account for stock held so buying stock would indeed reduce her "profit". It's completely different to the long established traditional basis where only stock that's sold is counted as an expense.

Re the car lease and mobile phone, only the business use proportion is allowable expense, so she couldn't deduct all costs, hence her "profit" will be higher.

Daughter needs to be over 25 years old unless she has children herself or is disabled.

Gets very complicated I'm afraid, and as most accountants won't deal with tax credits, the accountant may or may not be right. Best to phone the tax credit helpline for a second opinion.

dktreesea

The place to go to ask about applying for WTC is HMRC rather than your accountant. She would need to show that her projected profits for this financial year are low enough to qualify for WTC. But, - and this is a change compared to previous practice by the HMRC - they are much more interested these days in if the business is sufficiently profitable to be making at least the FT NMW (35 hours a week). They may not give your DD WTC if they think the business doesn't have a possibility of achieving these sorts of profits.

Amanda65

Thanks to everyone who has offered advice. It was for this very reason I asked the question so thank you for taking the time to answer.

She will phone HMRC in January, once the first couple of weeks are done and take advice.

patman99

If HMRC tell her the same as her accountant, she might want to consider setting up as aimited company. At least she can then class herself as a director, so should be entitled to WTC.

[Deleted User]

A self employed person CAN claim working and child tax credit. (subject to standard eligibility)

You must call and give them a prediction of earnings, it can be 0 or negative.

You can also tell them how many hours you work, you can declare any amount of hours that you wish. But of course it should be truthful!

So you could say 50 hours per week and earning 0. Yes she would be entitled to the full amount as if she were working 50 hours and earning 0.

I came to this forum some years ago and found a very very good adviser for the purposes of tax credits.

Making the claim and informing the tax credit staff of the rules is a challenge, but it's possible and it's legally completely acceptable. When Universal Credit replaces CTC and WTC it will remove this option, if her claim commences as UC then she will not be able to claim as above.

Hope that helps, I'd seriously consider a new accountant.

theonlywayisup

patman99 wrote: »

If HMRC tell her the same as her accountant, she might want to consider setting up as aimited company. At least she can then class herself as a director, so should be entitled to WTC.

And best take advice on that too. With a Limited Company come other associated costs. It may not make financial sense. That's where a good accountant will reap dividends (no pun intended).