I want to work self employed part time, how do working tax credits and tax work?

[HowD]

I am a clueless novice.

Help!

My work is in shops and galleries on sale or return, and will inevitably sell more in the Summer (live in a touristy county), be much quieter in the Winter. For fuck sake it takes time to build business up and get yourself known. A lot of my friends are going to be fucked too, many are musicians and artists.

This was supposed to be my great plan to earn and work at home while ds is at school. No chance now.

They would say you need to either ask for the payment for your work to be spread out over the year (e.g. £500 sale paid at £50 per month), or take up employed work in the winter.

From what I've read, the gateway interview for UC would require you to show that s-e is your main source of income. So presumably getting some paid work as well wouldn't necessarily help?

So confusing.

I am thoroughly confused by the whole thing.

Yes thats what I read LineRunner.
If I get paid employment for say 10 hours a week, I am am hoping to make things for 6 hours a week (in reality would be more), and then hopefully make enough. Now sure how that would all work though.

My work is in shops and galleries on sale or return, and will inevitably sell more in the Summer (live in a touristy county), be much quieter in the Winter.

The whole issue of UC expecting the SE to hit monthly income floors is a serious weakness. You'd think someone in a Conservative government would understand trading cycles, seasonality etc and how this migt be a problem, especially for start-ups and young businesses

I think there is a lot of confusion on this thread between the rules for tax credits and universal credit.

For working tax credit - new rules from 6 April 2015 require you to show that your business is on a commercial basis, with a view to realising a profit and is organised and regular. There is no minimum hours requirement - but HMRC will select people to check if they are earning less than the hours required x NMW. However they then have to apply the legal test I just outlined. The hours x NMW is just a way for them to select people for further checks and is not part of the test.

For universal credit - if you are in the all work requirements group, after the first year of a new business you will be required to earn at least 35 hours x NMW (unless your threshold is set lower). If you do not, then you will be treated as if you are and have your UC worked out on that figure.

However, UC is only just being rolled out and as someone posted, currently self-employed people cannot make claims for it. The only exceptions are in two digital areas (Sutton) where you can no longer claim tax credits and if you become a couple with someone on UC or if you are unemployed and claiming UC and then start self-employment.

Cleo

Also, there's a difference between raw profit and how much I might choose to pay myself each month, surely?

In those first critical years I would perhaps aim to live frugally and plough as much profit back into the business as I could.

Or I might have received investment from family and choose to pay myself a wage out if that. Is that permitted?

I seem to remember that reinvesting profit in the business isn't something UC allows for Line.

Presumably they can only enforce that kind of stipulation for Sole Traders, however?

I wonder whether there will be a rush to set up Ltd Co.s, LLPs etc? Not worth it for a small turnover, I suppose.

Cleo,
Thanks for that. Can you explain the rules for s-e and child tax credits?

Linerunner
Sole trader accounts have no concept of "paying yourself" each month.
Have a look at this page I wrote for many years - aimed at ebayers but generally applicable.
talkinpeace2.blogspot.co.uk/2014/09/here-is-list-of-questions-i-most.html
It explains how tax accounts work

Can someone explain the rules relating to running your business as a limited company and taking a wage? My niece runs a business and this year had been terrible, she has managed to scrape a small wage for herself from the business but might struggle next year. It's such a shame because she was doing so well until Google penalised her website for backlinks.

TalkinPeace Many thanks for the link.

cheekygeeky
If she has a Ltd co, no matter how small, I would hope that she has an accountant who can help.
If she is the director, she is an employee and can pay herself what she likes, but cashflow is king.

Talk

Is that likely to be cost effective?

How much does it cost now if you get an accountant to 1) set up the Ltd Co? and 2) Do annual accounts? Ball park obviously

For a very small business, I mean.

Limited company now only worth it for turnover above £40k at the minimum
and profit over £25k minimum

Yes, I see.

Well this will get interesting

Talkin thanks.

She has ab accountant who has no clue about the tax credit rules. I've advised her to find another. This year's wages are essentially coming out of last year's profits as she has made very little this year. I've advised her to get advice asap. She's a single parent and looking for a job whilst trying to keep her business afloat.

Talkin can I ask why it's only profitable for a business to turn over 40k and profit 25k? Sorry to sound so clueless.

Line - For child tax credit - it depends on how many hours you are working. If you are working enough hours to claim working tax credit then the rules I stated before apply. If you are not, then they would just take the earnings you declare for tax purposes into account when calculating your CTC. You wouldn't have to meet any specific tests in that instance or make a minimum profit.

Under Universal Credit that will be different - there are no hours thresholds so if you are self-employed and it is our main employment the minimum income rules hit you (if you are in the all work group).

On the point about using a limited company to avoid the rules - it might possibly work for tax credits but it wouldn't for universal credit because there is a rule that says limited companies who are similar to self-employed people (e.g. 1 person limited companies) will be subject to the self-employed rules of UC.

Cleo

cleanmachine
those numbers are for a limited company : have a read through the link I posted at 08:34

It is what was my Ebay "me" page back when they existed - it was the work of many years and much criticism, but it does put the essential bits of small business tax law into plain English.

Limited companies have compliance costs that make it only worth your while above a certain size

sole traders can be diddy

'Sole traders can be diddy'..... what does this mean?

I really need to get out and get with it more.

clean
I have clients who are employed and run sole trader businesses that turn over less than £5000
because the costs of being a sole trader are minimal