Can I claim for Working Tax Credit when self-employed?

Working Tax Credit is a type of benefit designed to top up low income for people working in the UK, even if they work for themselves.

Here we will look at how to determine whether you qualify for the Working Tax Credit as a freelancer, as told by The Accountancy Partnership.

How do I qualify for Working Tax Credit as a self-employed person?

Employees qualify by working the minimum number of hours each week for their age range. If you’re self-employed then you’ll need to show that your average hourly profit is at least equivalent to the National Minimum Wage.

If it’s lower, then you might be asked to demonstrate how you plan to grow the business, and what you’ve done so far. For instance, by writing a business plan, and promoting the business on social media or in the local press.

You’re only eligible for Working Tax Credits if you already receive Child Tax Credit and are working (or have started work recently). Unfortunately, you won’t be able to claim tax credits at the same time as claiming Universal Credit.

How is my claim worked out if I’m self-employed?

Your claim for Working Tax Credit is based on how much money you earn as a result of working for yourself. Your self-employed earnings are worked out by using your tax return from the previous tax year to estimate what this year’s income will be.

You’ll receive a renewal pack for tax credits every year, so you’ll be able to confirm if you received the right amount of credits for the year that’s just gone.

How much am I entitled to?

The basic amount of Working Tax Credits that you’re entitled to receive each year is capped at a maximum of £2,005. You might also be able to claim extra elements on top of this basic amount, though. The extra elements are worked out depending on your personal circumstances. For instance, a single parent can claim up to £2,060.

HMRC’s tax credit calculator estimates how much you are able to claim in tax credits. You’ll need to be able to provide some basic details to use the calculator, such as your income. Using the calculator doesn’t mean that you’ve made a claim, and won’t affect the outcome of any future claim that you decide to make.

What happens if I claim too much Working Tax Credit?

As a self-employed person, it can sometimes be difficult to predict how much money you can expect to earn from one year to the next. Self-employment income can fluctuate, even if your industry is subject to changes in seasonal demand or other influences.

This can make it tricky to calculate your claim for Working Tax Credits accurately.

• If your actual earnings are £2,500 higher than your estimated earnings, you might have received a tax credit overpayment, which you may need to pay back to HMRC.
• If your actual earnings are £2,500 less than your estimate, you might not have received enough Working Tax Credits. If this happens you might receive a lump sum payment for the difference.
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If your situation changes, or if it becomes clear that your actual earnings will be very different from your estimate, then you should let HMRC know as soon as possible. You can manage your tax credits online, and use the online system to report any changes, let them know about your actual income, and check what payments are scheduled.

More on freelancer tax advice.