Should I use my phd stipend as self employment income so I can access childcare benefits?

amaphd

I’m a full time phd student with a child in nursery part time. In September I qualify for 15 free hours but still have to pay for anything beyond that. I feel like I would be better off if I declare myself self employed, declare my stipend of £15500 k ish as income, paid tax on it, then get 15more free hours childcare that is available for people earning 

Thoughts on this workaround? Is it legal? 

I would pay ~ £980 tax a year (incl nat insurance) 

I would save £250/month ish for sept-dec and maybe £390 for Jan and Feb next year following which my funding ends. 

marcia_

amaphd said:

I’m a full time phd student with a child in nursery part time. In September I qualify for 15 free hours but still have to pay for anything beyond that. I feel like I would be better off if I declare myself self employed, declare my stipend of £15500 k ish as income, paid tax on it, then get 15more free hours childcare that is available for people earning 

Thoughts on this workaround? Is it legal? 

I would pay ~ £980 tax a year (incl nat insurance) 

I would save £250/month ish for sept-dec and maybe £390 for Jan and Feb next year following which my funding ends. 

 You mean lie? 

You will be a student not self employed 

Icequeen1

Putting aside the tax problems of what you describe, the definition of self-employment for childcare (Tax Free Childcare and 30 hours) is "engaged in carrying on a trade, profession or vocation on a commercial basis and with a view to profit". You are not carrying anything on commercially and you are not doing so with a view to making any profit. 

amaphd

Hmm I certainly dont think it would be a lie. I have worked in R&D before and received grant funding which has been used to pay my salary. I don’t see the difference. In other countries a PhD is a salaried job. I do research for  money. I develop potentially commercialisable IP. So enlighten me - what about this is not work? Just the bit where I earn under the legal minimum wage? 

Icequeen1

amaphd said:

Hmm I certainly dont think it would be a lie. I have worked in R&D before and received grant funding which has been used to pay my salary. I don’t see the difference. In other countries a PhD is a salaried job. I do research for  money. I develop potentially commercialisable IP. So enlighten me - what about this is not work? Just the bit where I earn under the legal minimum wage? 

Firstly, it is a stipend which is specifically tax-free in the legislation, it just isn't trading income. 

There have been many calls for PHD students to be treated as employees as they are in some other countries but in the UK there is no contract of employment and they are for tax purposes treated as students. There are no employee rights. Self-employment is not a choice, it depends on the facts of the situation. If anything, you would be closer to an employee. Self-employed tests include how much control you have. For example, can you send a substitute? Do you take any of the risk? Do you provide your own equipment? Most self-employed people have expenses - what would yours be? Can you choose when to work? Do you invoice for the work don?. The answer to most of those questions is no - it is far more akin to employee than self-employed but it has not been accepted as employment for employment law or tax purposes. 


The other thing that would be relevant is what does the paperwork say - do you have any paperwork supporting the contract for services that self-employed people would usually have?

Here is a link to the status manual which covers all of the tests in detail: https://www.gov.uk/hmrc-internal-manuals/employment-status-manual/esm0500 

It sounds like you have made up your mind anyway

Alice_Holt

 I was thinking of posting a similar response about the definition of self-employment, but icequeen has detailed it much more eloquently.

 I'm not sure about consequences of claiming self-employment status to gain free childcare, when as icequeen has explained (in both her posts) that a stipend does not constituent self-employed income.
With other benefits a claimant who (even unintentionally) misrepresents their circumstances to claim a benefit could expect HMRC / DWP  to demand repayment. 
        

amaphd

Thanks IceQueen that was helpful! This clears it up for me but also highlights how tangled up it is. I work when I decide, buy all my own materials, raise additional grant funding from other sources (£2k last year which I used to buy machinery which I own)… in terms of IP I have a contract which states that I exchange it within the bursary agreement and retain the status of creator… looking at the manual you share regarding definition of service I would pass the tests. I.e this highlights the legal limbo of the PhD.

A reminder that not paying the UK’s brightest minds a living wage, then precluding them from paying tax (even when they want to) means that we are falling through the cracks.

sheramber

But it would not be a choice- either all PHD  income would be taxed, whether it was to your benefit for childcare or not, or none is taxed.

Would you want to be taxed on it if you didn't have childcare to pay?

Icequeen1

sheramber said:

But it would not be a choice- either all PHD  income would be taxed, whether it was to your benefit for childcare or not, or none is taxed.

Would you want to be taxed on it if you didn't have childcare to pay?

That's actually a good point. If you are saying you are self-employed and your income is is 15.5k with no expenses then you should be declaring that regardless of the childcare position. They are two entirely separate things. You can't just chose to say you are self-employed from September. 

amaphd

Absolutely I would prefer to be taxed. I think that there are many moment in life where you need to have been paying tax & ni. I would 100% have preferred to have either been employed or self employed than be a bursary funded student. The gains from not being taxed aren't worth it in this instance unless you are well off and consider your phd to be leisure (I have never met this person) in which case it is additional untaxed income. 

amaphd

Nb the discourse is currently that all phd students would prefer to be employees. In other sectors supposed trainees are still employees.