Tax Credits for the Self-employed

By Jake Martin

2 min read

As a self-employed person starting out, cash flow can be tight and earning what you might regard as a ‘wage’ might be challenging. However, the government is aware of this and, as is the case for employed people, there is support in the form of tax credits for the self-employed. In fact, most self-employed people are probably entitled to some sort of tax credit.

Over the last few years tax credits in the UK have been big news and one of the major changes is the transfer of all major tax benefits into what is known as Universal Credit.

The new type of Universal Credit is being rolled out across the UK on a stage-by-stage basis. This activity is expected to continue until 2019 when Universal Credit will be the single source of benefit. In the meantime, Working Tax Credits and Universal Credit apply to different people across various parts of the UK.

Universal Credit

Universal Credit itself is designed to ensure that all those people eligible to work in the UK will be better off in paid work than not. It is provided on a rolling scale which rises and falls in line with a person’s income earned from employment.

Universal credit is not usually available to those people already in self-employment, directors of limited companies and partners in a limited liability partnership. Anyone claiming Universal Credit who is considering starting a business can be supported in doing this whilst continuing to claim.

Those people who have been in self-employment for more than 12 months and are experiencing falling income may be subjected to the Minimum Income Floor test. The Minimum Income Floor compares your income to that of someone in paid employment doing a similar job for minimum wage on a full time basis. Should there be a difference, Universal Credit may be provided to bridge the gap.

There is no set figure for Universal Credit, with benefits agencies taking into account things such as savings or capital in the business, marital status, or if you have children.

Working Tax Credits

For many, Working Tax Credits continue to be the main type of income support benefit.

Working Tax Credits apply to self-employed people who are involved in organised, regular activity for the purpose of making a profit on a commercial basis, with the government keen to ensure these guidelines are met.

Once again there is no specific amount of working tax credit available for those considered to be on a low income. Furthermore there is no set amount which is deemed ‘low income’ with a successful claim depending on circumstances. Access to such benefits will take into account income, partner’s status, age and number of hours worked each week alongside other criteria.

In both cases it is important that self-employed people keep an ongoing record of their income and expenditure in case the Inland Revenue requests statements to confirm an individual’s right to benefits. Failure to keep or provide adequate records may result in benefits being withdrawn or even demands for the benefits to be repaid.

In either case if you are involved in self-employment and believe you may be entitled to support it is worth contacting the local benefits office for more information.

For more self-employment guidance, visit the QuickBooks self-employed page.

Information may be abridged and therefore incomplete. This document/information does not constitute, and should not be considered a substitute for, legal or financial advice. Each financial situation is different, the advice provided is intended to be general. Please contact your financial or legal advisors for information specific to your situation.

Related Articles

Where to Find Funding for Your Start-up

While everyone loves the concept of “free money”, it is important for…

Read more

Accounting services for SMEs – how do you decide what your business needs?

Which accounting services does your SME need?  When you first start your…

Read more