How to claim tax credits if you’re self-employed

With inflation on the rise, many people are feeling the pinch.

Fortunately, there’s financial support available from the government – not just for employees but for self-employed workers, too. These are provided in the form of tax credits, which can be a useful way to supplement income.

In this article, we’ll explain what they are, how to claim tax credits, and how to work out if you’re eligible for them.

What are tax credits?

Tax credits are benefits. They’re provided by the government, funded by taxes, and offer financial support to those in need.

Suppose you’re in employment and earn under a certain threshold. In that case, you might be entitled to the working tax credit, or if you’re a single parent, you may be entitled to the child tax credit.

The child tax credit helps to support people with the costs of raising children (alongside the child benefit, which is separate). The working tax credit is paid to workers on lower incomes, whether employed or self-employed.

In both cases, the tax credits are paid to you over the course of a tax year to help support you financially.

Am I entitled to tax credits?

As mentioned above, it depends on your circumstances. The child tax credit and the working tax credit will only be available to you if you’re a lower earner or have children.

If you’re eligible, you can make a claim. However, the eligibility criteria have tightened considerably, and some credits have been replaced.

You must qualify for and receive one of these tax credits before making a claim for the other. So, suppose you’re eligible for and receiving the child tax credit. In that case, you may also be eligible for the working tax credit.

You can use the tax credit calculator on the website to work out your eligibility and may be able to apply for Universal Credit if you’re not eligible for either.

Next, we’ll explain how to claim tax credits.

How do I claim tax credits if I’m self-employed?

You’ll need to provide HMRC with your earnings in the last tax year to claim working tax credits. Your earnings are your taxable profits, less any trading losses and pension contributions (and Gift Aid donations).

If your business made a loss overall, then your earnings are zero for tax credit purposes. From this point, you can apply directly using the Universal Credit portal. If you’re already receiving a tax credit, you can apply for another by telling HMRC this way, too.

If you’re receiving tax credits and your circumstances change at any point, you must tell HMRC about the change within one month. This is in case it affects your entitlement to, or eligibility for, tax credits.

Finally, you can’t backdate your tax credits claim for more than 31 days.

How do I calculate my working hours?

How many hours you have to work to claim working tax credits varies, depending on your circumstances.

Your age or circumstances Minimum hours per week
25 or under Ineligible
25-59 30 hours
60+ 16 hours
Disabled 16 hours
Single, with 1+ child 16 hours
Couple, with 1+ child 24 hours (at least 16 hours worked by one person)

Alongside this, how many hours you need to work to claim tax credits depends on the type of work you do. Your working hours are what you work in a typical week.

If you’ve got more than one job, count all your hours from all jobs. Self-employed workers can claim for all the time spent on their business once it begins trading.

How you calculate your hours is different, however, if you’re employed, a seasonal worker, an agency worker, or work on-call. You can find out more here.

How do I renew my tax credits claim?

HMRC will send you a renewal pack containing all the details you need to process your tax credits renewal. The renewal deadline for most people is 31st July. Still, it can vary, so check your renewal pack for more information.

If you miss the deadline, don’t worry. You’ll receive another document from HMRC – the TC607 form – which you’ll have to return within 30 days, and your entitlement will be renewed, providing you still meet the eligibility criteria.

To recap

Tax credits are a state benefit to support people with the costs associated with having children, or to top up low incomes. You may be entitled to tax credits, depending on the nature of your work and how many hours you do.

However, there are also R&D tax credits available to small businesses. Your accountant can talk to you about how to claim R&D tax credits.

To find out how Caroola can help you with your tax and accounting needs, please speak to one of our friendly experts.

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