Tax Credits and Self Employment - Cannot Bloody Believe It!

[TryingToGetBy]

I have been unable to get a job despite hundreds of applications so decided to become self employed so I don't have to languish on benefits. I do not have any money or access to business loans to set up an office so just started working from home offering clients home visits.

I informed Tax Credits of this in June and I put the Dcs in childcare and claimed childcare costs. I told the advisor that I did not know how much I would earn this tax year and was told to inform them during the year if I looked like I would earn more than £10k as that would affect my claim. I don't expect to earn much anyway this year. My chosen profession entails a lot of market research and a lot of time building relationships and 'word of mouth' recommendations and I offered free introductory sessions of which I had a few clients who have not yet taken up paid sessions. When I am established I do expect to earn a decent income and set up an office, if I don't make much this year, I intended to give up on it.

For the whole of the school summer holidays I have not been able to work so took the Dcs out of childcare and have informed Tax Credits of this. So in total I have been working for a little over 2 months.

I got a letter a few weeks ago asking for my self employment details together with details of income from my self employment of which to date there has not been any. When I rang them to get an update I was told that as I had not earned anything yet (although I am out of pocket paying out for stuff), I could not be classed as being self employed as I had to have a reasonable expectation of getting paid (which I do!). I may have to pay back the working tax credit and childcare credit that they have paid me so far and they may not pay out any further childcare costs (I would have to give my chidcare providers 4 weeks notice and continue paying it until then)!

AIBU to be absolutely livid about this? I expected to be at least given this tax year to earn something instead of giving up before I have even started and having a large overpayment to pay back. The government want people working but can they really expect new businesses to generate money immediately and penalise people if they don't. I am so bloody upset.

[wimblehorse]

Sorry OP, but I guess they have the rule in place to avoid paying childcare for people who would take the piss and not work/attempt to work.
No helpful suggestions from me - if you were previously on benefits were there no grant/incentive type things available on becoming self-employed and stopping benefits?

[GailTheGoldfish]

Don't blame you for being mad. Obviously it will take time to establish a business and make a profit. They just push people into being self employed to save themselves money and make the stats look better without really wanting to support people in building a customer base. Fingers crossed you get some real interest soon.

[wheresmespecs]

that is ridiculous. is there any way of appealing?

It is utterly stupid to kick someone in the teeth for being enterprising and trying to make a go of things, rather than sitting on benefits. Very few businesses generate profit during start up. I would be livid. They are idiots.

[LadySybildeChocolate]

I'd do something else whilst you're getting this up and running. I'm a writer but it takes so long to write a book, rewrite, rewrite again, edit it, find a publisher etc, so I also do other things (note taking, admin etc). A lot of people claim they are self employed, get the tax credits and do nothing all day.

[allthefun]

There is an advantage to being self employed in that you can claim you are working "x" amount of hours to suit yourself. The rate of credits you can claim depends if you doing 16 hours or more of work (employed, self employed or a combination). Doesn't working tax credit only apply if you do 16 hours or more? There is no way of saying how many hours you actually work though unless I suppose you haven't actually made anything.
This might not be an issue next year with universal credit though.

[mollymole]

Do you have written evidence that you were actually 'working' during this period, i.e. letters of confirmation of appointments, and follow up plans from these appointments etc, daily work schedule, receipts to proove you were actively self employed, such as for advertising, itemised phone bills, etc ? If you have these you may be able to raise a case. It could appear to them that you are just claiming for childcare but are not really 'working'. What line of business are you in and is there anything that can confirm, from your professional body etc that this is the standard way of setting up such a business.

[Pavlovthecat]

Do you keep logs of the market research you do? of the free intro sessions, time, date, amount of time spent etc? if you have a paper trail, could that be put into an appeal, as you can show you are not just sat on your backside, but are actually working to get the business of the ground? I dont know, just throwing in some ideas.

I agree that there has to be a way to ensure people don't take the piss and claim childcare costs as self employed when they don't work, but if you can evidence the work you are doing, if you can show money spent on products for your business and time canvassing by keeping a log of some kind, surely that shows you are not lying, as it takes time and effort to set up a paper trail.

[bubbles1231]

You need to prove you are spending time doing something. I think you could actually declare a loss if you have expenses but no income and this would satisfy them that you are working. Keep receipts of any outgoings. You should have at the least a spreadsheet with income and expenditure. income will be zero but expenditure should show something. if you are self employed you'll be registered for basic national insurance. you can apply for an exemption to this if your profit is likely to be below a certain level for the tax year. Write or email them with a letter to the tax credit people showing what you've done.

[MyLastDuchess]

YANBU based on my experience, but I live in NL so obviously things are not the same here.

The tax dept here have been more lenient over the past few years due to the poor state of the economy, but basically we self-employed people are expected to keep a diary explaining exactly what we do with our time every day. You need to put 1225 hours per year into your business here to get the SE status, though they need not be billable hours. If you consistently earn nothing or not much then you can expect to be audited, but if you can show what you're doing (as in your case, market research, free sessions etc) then it will not be a problem.

I would have thought that there would be some sort of similar provision in the UK, as otherwise nobody would dare to have a bad year in their business or you could easily go bankrupt with child care costs etc!