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Working Tax Credits for the Self Employed

Andre Spiteri
Calculator with paper card labeled credit on top|Calculator with tax credits for the self employed

Did you know you can claim working tax credits, even if you’re self employed? Being self employed can be stressful at the best of times. But it’s even more so when you’ve just started out and your income is low. Claiming working tax credits can help top up your income during those initial lean months.

What are working tax credits?

Working tax credits allow you to top up your earnings if you’re working but have a low income.

They consist of two parts:

  • A basic amount
  • Elements, or extras

Depending on your circumstances, you can get just the basic amount or the basic plus one or more elements.

We’ll look at what exactly you can get in more detail below.

Can I claim working tax credits?

You can claim working tax credits both if you’re employed or self employed. In either case, you’ll need to satisfy a number of criteria in order to qualify.

If you don’t have children, you must:

  • Be 25 years old or over
  • Work more than 30 hours a week
  • Earn less than £13,253 (If you’re claiming as a couple, the limit is £18, 203 jointly)

If you have children or suffer from a disability, you may be eligible for working tax credits even if you earn more than this amount. However, you must:

  • Be at least 16 years old
  • Work at least 16 hours a week

Understanding elements

Depending on your circumstances, you may also be eligible for one or more elements. These are added to your total working tax credit.

However, HMRC calculates the total amount based on your income. The more you earn, the less working tax credits you’ll get.

You can estimate approximately what you might get by using the tax credits calculator on the GOV.UK website. Alternatively, you can use the benefits calculator, which includes tax credits, on the Entitled to website. Note, the HMRC calculator will show potential entitlement from the day you use the calculator to the end of the tax year. The Entitled to checker shows potential entitlement for the whole current tax year (6 April to 5 April).

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How do I claim working tax credits?

You can claim working tax credits at any time of the year.

Here’s how to go about it:

Step 1: Check your eligibility

To apply, you’ll need to complete a questionnaire on HMRC’s website. You’ll need details of your income for this year and also for the last tax year.

Step 2: Download a claim form

If it looks like you qualify, you’ll be given a link where you can download a claim form. You’ll need to fill this in and send it to HMRC by post. If self-employed, registration as a sole trader is necessary in order to complete the form.

The maximum fine is £3,000 if you give the wrong information, so beware.

Step 3: Get paid

The government pays working tax credits every four weeks. However, you can choose to get paid weekly instead. To do this, simply say so on the claim form.

Changes In Your Circumstances

If your income increases, you’ll need to report the change to HMRC. You’ll also have to report to HMRC if:

  • You become part of a couple (or break up)
  • Your total working hours change
  • You’re no longer responsible for a child
  • You leave the UK for more than eight weeks

You risk a fine of up to £3,000 if you don’t comply.

Final word: The future of working tax credits

The UK government is phasing out working tax credits, and some other social security benefits, and replacing them with universal credit. This phase-out plan is happening in stages.

Universal credit is now available across the UK, and most people will no longer make a brand new claim for tax credits. Instead, they must claim UC (or pension credit). The plan is to move Existing tax credit claimants to universal credit between 2020 and 2023. This move, scheduled between July 2019 and July 2020 will follow a pilot involving up to 10,000 people. You can find out more about this in our universal credit section.

Your local Jobcentre Plus or Tax Credit Office will reach out when universal credit becomes available in your area.

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