How do you record/inform Tax Credits of hours worked as Self Employed

[PavlovtheCat]

DH and I are starting the process of starting our own business. I say starting the process, this is part of it! We have the idea, have had for a while, keeping going back to it time and again, and now we have reached a point where we are saying, we can actually make some money in time with this, we can really do it, and enjoy it, so are ready to get the ball rolling.

I know the first thing we need to do is register (well it will be DH's business so he needs to) as a self employed business with inland revenue. DH is on that.

What I want to know really is how will it affect our CTC/WTC etc?:

*how do we record hours worked with tax office? what if we make no profit in the first year, can we register that DH has worked say 25 hours (of course show what this is made up of) but yet have no income from it? I can't be sure we will make a jot in the first year, setting it up.

*can he be self employed and also have another job? he is thinking about doing it alongside his current job until it is established because it wont earn a full wage in the first year(s) (or, it might rocket! you never know...). Will that screw up tax credits (i expect it would) even if he is not earning in the self employed element, or if profit is low

*If he quit his job, and worked self employed to get the business off the ground, working around 25 hours a week (an approximate), would we be entitled to claim contribution towards childcare in the same way we do now?

*And, talking of hours, what if we cannot be sure how many hours are required. We are anticipating at least 25 but it could be 30+ (outside chance it will be less than 25 but doubt it, if it was less than that he would work in his other job too). Do we give a rough figure and then amend at the end of the year?

My hours at my own job would stay the same, being the stable income in all this.

Any advice would be great thank you!

I've been juggling this for a year and now DP is self employed too, so it's great fun!

For the self-employed, both income generating and non-income generating work counts as hours for tax credit purposes, so accounts, marketing, networking can all be counted as working hours. The estimated net profit can be used to start with, but We've been advised to keep HMRC informed of any significant changes throughout the year, so we don't get clobbered to repay next year after you've given them your final figure. Childcare tax credits can be claimed in the normal way.

Our reality is that we are both working well over 40 hours a week, but at the moment, income is minimal!

After a couple of years of trading, HMRC expect the hours to equate to minimum wage apparently; not sure about that yet, though, it seems unlikely!

So, we tell them that DH is working approx 25 hours for example, do they need to see how it is made up? or is that recorded on the tax return? (all too new to me?), and then we tell them that we predict we will earn say £5k. I guess it is better to over-estimate than under? if we over-estimated and we did not get enough credits, would they re-emburse for the whole year? what if we don't anticipate making money in the first year or like only couple of grand? would they expect this to happen? I would think it is normal?

I really cant see us earning anything, and any income we generate will need to be plowed right back in, for the first year at least, and then we can start seeing some money coming in from it. I anticipate that within 5 years we would be earning minimum wage, but as you say that would be on 40 hours and I expect by the time we earn that kind of wage, DH will probably be working much more than that!

they never asked us about our hours
and we just told them the numbers every six months

Ive never had to 'prove' my hours - with tax credits, as long as your total joint hours are 24/30 then they assess you accordingly - and I don't know anyone who is self employed who does that little!

My net profit last year was a massive £25 - HMRC have been fine about it

That is really useful to know about the hours. How does that work with childcare contributions from tax credits? its not a huge issue if this makes it all too complicated as if it is, I can do the salary sacrifice through work. Right now if I did that with us both working salaried, it would not help as much as the help I get with tax credits, but with DH working self employed, if we can't claim tax credit childcare element we would just use that instead for something at least. Just helps to know our workings out.

I should think that initially, he would be looking at 25 hours a week to set it up, because of what we are thinking of, it would not be an all day every day thing initially, although there would be a LOT of advertising and all the related stuff to do, which would surely take up a lot of time. But, i do think that after the first couple of months, once we started getting some trade, this will shoot past 25 hours quickly.