25 March 2015

HMRC policy paper - new rules for the self-employed claiming working tax credit

HMRC have published a new briefing paper about the new rules for the self-employed claiming working tax credit - Revenue and Customs Brief 7 (2015).

The decision to tighten the rules for self-employed tax credit claimants was first announced in the Chancellor's Autumn Statement in December 2014, when it was suggested that self-employed claimants whose earnings were below 24 hours a week x national minimum wage would be asked to show that their self-employment was genuine and effective.

In responding to the Autumn Statement, LITRG said that the proposed earnings x hours worked test was likely to discimminate unlawfully against disabled self-employed people who may not be able to work 24 hours a week for health reasons and who qualified under existing legislation on the basis of a 16 hour week.

The actual legislation (SI 605/2015), effective from 6 April 2015, delivers a slightly different rule, whereby a claimant must meet the condition of being either employed or self-employed, as defined. And to be self-employed, their activity needs to be undertaken on a commercial basis with a view to making a profit.

Worth noting that the additional conditions from the Autumn Statement announcement, that a self-employed claimant must reigster as self-employed with HMRC for self-assessment and provide their unique taxpayer reference number with their wtc claim, have been postponed for introduction next year.

HMRC's briefing offers some information about how the new condtion will be applied from April - perhaps more than expected given they still refer to selecting cases on the basis of a minimum earnings threshold equivalent to qualifying working hours x national minimum wage. But it leaves many unanswered questions at this stage, such as how HMRC will determine whether an activity is undertaken on a commercial basis, whether there will be any practical implications for the difference in tax and tax credits interpretation of status and how claimants and prospective claimants will be helped to ensure they claim on the correct basis to avoid unwittingly incurring overpayment. HMRC are still developing their guidance and we will provide more information as it becomes available.