Working Tax Credits Entitlement for the Self Employed

If you live in the UK, are aged 25 or over, work at least 30 hours a week and are on a low income you qualify for government benefit payments known as Tax Credits. You may also qualify if you have a child.

The higher your income, the less Working Tax Credits you are eligible for. This is something you definitely want to look into if you’re starting a business because it gives you some money even if your business isn’t yet turning a profit.

Why Job Seeker's Allowance is not fit for purpose

A person over the age of 25 claiming Job Seeker’s Allowance (JSA) is paid £71 a week, and can work up to 16 hours a week while claiming. However, what you earn is deducted from your JSA, although the first £5 is disregarded.

If you work 16 hours or over, all your welfare payments are stopped regardless of whether you earn ANYTHING. So if you are doing unpaid work to build your business with a view to transitioning into regular paying work, it cannot technically exceed 15 hours, 15 minutes and 59 seconds. This is possibly the most ridiculous policy I’ve ever heard and is something I have experienced first hand.

Be careful of the Job Centre because it is simply NOT compatible with anyone who shows business initiative or self employment ambition. If you are made redundant and end up signing on, you have my sympathy. Bureaucracy – and government policy in general – is surely the enemy of any small business.

If you are running a small business you must fill in something known as a B7 declaration form before every visit to your Job Centre. You will declare how many hours worked and your profit. Do not declare turnover, as this confuses certain members of staff. I’m sorry to say it but they are poorly trained and in some cases downright stupid. Although it was a long time ago, one staff member remarked that my business was “pointless”.

Why you are better off claiming tax credits

If you lose your job but have a business idea in mind, try to avoid the Job Centre altogether. I would highly recommend applying for tax credits immediately because they can take several weeks to process. Simultaneously registering as self employed through the government gateway is recommended.

Assuming you are on a low income, and working the required 30 hours each week (it will probably be double this if you are starting a business) you will receive about £52 a week in tax credits. It may be less than the standard income based JSA at £71 a week but at least you are free to do what you like without worrying about silly rules and mild threats from the Job Centre.

April 2013

Universal tax credits will come into force in April 2013. An income will be assumed from hours worked against the national minimum wage. Clearly, this is ridiculous as many self employed people do A LOT of unpaid work. Be aware of how many hours you declare otherwise you may end up with no support. Apparently, those under the present tax credit system (Feb 2013) will see their claim protected. If you're going to put in a claim, do it as soon as possible.

Tax credit criteria

Have a look to see if you can claim weekly tax credits. The good news is, you can backdate the claim to whenever you started trading as self-employed or as a business.

Let’s face it; being a start-up, your income is likely to go and up and down so the tax credits could be a real lifeline.

If you don’t have children, you need to meet the following criteria to get Working Tax Credit:
  • If you're aged 25 or over, you need to do paid work of at least 30 hours a week
  • If you have a disability and are aged 16 or over, you need to do paid work of at least 16 hours a week
  • If you're aged 60 or over, you need to do paid work of at least 16 hours a week

If you're responsible for children you need to be aged at least 16, and work the following hours to get Working Tax Credit:

  • If you're single, you need to do paid work of at least 16 hours a week
  • If you're a couple, your joint paid working hours need to be at least 24 a week, with one of you working at least 16 hours a week

There is a short tax credits questionnaire to complete. Make sure you enter “£0” for your income if you are not in profit due to business expenses. Before you take the questionnaire, set up an Excel spreadsheet to measure your profit (if any), loss and general turnover. Keep a record of all your receipts and marketing expenses, systematically entering the figures regularly. This is very important and will also be useful if you claim housing benefit from your local authority.

How to claim

Once I had all my info and figures to hand, I called the tax credits helpline (through 18185 this cost a mere 3 pence per minute) and spoke to someone almost immediately. A tax credits application form was posted to me and was fairly straightforward to fill out. I did phone at one point to clarify some of the questions the form was asking of me.

  • Postal address
    Tax credits written enquiries
    Tax Credit Office
    PR1 4AT

If you write make sure to include a telephone number in your letter. If you're writing about a change of circumstance, mark the envelope “change of circumstances”.

  • Opening hours
    8.00 am to 8.00 pm, Monday to Friday
    8.00 am to 4.00 pm Saturday

    Tel: 0345 300 3900


  • Register self employed at the same time. It’s fairly straightforward. You’ll be prompted to sign up for a Government Gateway account. Sign up as an “Organisation” as this covers business and self employment. Ignore “Individuals.”
  • Working Tax Credits will soon become known as Universal Tax Credits- evidence suggests this system will be less favourable and assume a certain level of income. Be aware of how many hours you declare.
  • Have some tip ex handy for filling out your Working Tax credit form. I made one mistake and luckily was able to correct it.
  • Read the “How to fill out this form” guide that arrives with the form
  • If you get stuck or become unsure, phone the helpline. It is a mere 3 pence per minute through VoiP
  • The best time to ring the helpline is early in the morning

Useful links

HMRC: Tax credits website – Guidelines for your application
HMRC: Tax credits calculator – A short series of questions
HMRC: Register as UK self employed – Register as self employed online
Sign up for a government gateway account – You will need a GG account for most services