Tax credits tame the self employed

No warning for the claimants

HMRC Targets for low paid self employed are very worrying as the tests are likely toeliminate many self employed Tax Credit claimants, whose earnings are below the Minimum Income Floor of £12000. Over a third of self employed claimants’ earnings are below this level and will be subject to demands for information from the HMRC which is intrusive and unnecessary.

There was little consultation before the legislation was passed.

Alison Ward of the Association of Tax Technicians (ATT) says some concerns were raised about this when HMRC held a teleconference with members of the Benefits & Credits Consultation Group (BCCG) last March. See : Strengthening the self-employment test for working tax credit in Tax Adviser Magazine.  Alison Ward says

In summary, our concerns were as follows:

The lack of publicity surrounding the change to forewarn claimants;

The very short timescale in which to make the finalised guidance available;

The lack of time in which to appropriately train HMRC Tax Credits staff who are going to be taking on the role of key decision makers when reviewing whether an individual is trading commercially, with a view to realising a profit;

The number of claimants who will not have the necessary evidence, such as business plans, with which to prove to HMRC that they are trading commercially; and

The number of unanswered questions arising from the teleconference regarding specific issues. For example, foster carers are considered to be self-employed for WTC, but they would not meet the new test of trading commercially with a view to realising a profit. HMRC were unable to comment on the treatment of foster carers during the teleconference.

It is also worrying that the claimants concerned have been kept in the dark – particularly before the Election – and have had no time to prepare.

HMRC weeding out self employed Tax Credit Claimants

Self employed Tax Credit claimants are being tested to prove that their business meets new stringent Government standards  as described in Nursery World.

There are reports of self employed claimants already abandoning their business.

Tougher checks on self employed Tax Credit claimants were announced by HMRC last year in advance of more stringent conditions incorporated in Universal Credit as described by Making Workers Pay.

New rules published in isolation

HMRC did not inform claimants individually and there was no publicity about the changes. The new rules were published in isolation on the HMRC website on March 27th 2015 – after legislation was passed.

HMRC also said on this same page, the new rules apply to all new NEW self employed claims, with no ref to established claims. However, established self employed tax credit claimants are now being investigated, without any warning.

A checklist of nasty surprises

Below is the evidence check-list, which self-employed claimants must provide or risk their Tax Credits being stopped. If the HMRC decide that these claimants do not meet the new self employment definition they will have to repay the Tax Credits they have been overpaid.

These claimants will have two nasty surprises. First their Tax Credits will be stopped then the unexpected claim for repayment.

Here is the check list copied from a real example:

Evidence checklist –

(write down the evidence sent and return the page to us)

Date you started trading as a self-employed person
Business advertising

Leaflets, flyers, screen prints of social media activity

Correspondence with manager / agent / accountant who helps with your business affairs

Management contract, emails, letters

Evidence of sales and payments for Services

List of orders/ payment received for products/raw products

Evidence of customer suppliers

List of customers and suppliers names and addresses

Details of a typical trading day (if each day various give a breakdown of each day)

Breakdown of time spent on tasks/opening hours. Why do you operate the hours you do?

Evidence of hours worked

Summary or diary bookings and appointments that you have taken or made

Evidence of payments received

Invoices, receipts Paypal or Pay point statements

Evidence of business expenses paid

Receipts, Paypal or Pay point statements

Bank, building society or post office account statements, relating to your self employment

Business accounts or personal accounts showing your business transactions

Vehicle insurance (if applicable)

insurance policy for vehicles used in the business

Landlord premises insurance (If you trade out of a business property)

Lease/contract with landlord and premises insurance (eg. shop/office, hairdresser rents a chair, taxi driver rents a car)

Business insurance (for example public liability )

Copies of any business insurance documents

Evidence that you have met your licensing obligations for your trade

Copies of licences/insurances /registration documents ( required by the local authorities / national bodies for some trades)

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