new conditions for Working Tax Credit for self-employed from 6 April

here are the regs introducing the new test - don’t contain any transitional provisions so seems it will apply to existing as well as new claims -I guess we’ll have to wait to see how it’s applied in practice -

http://www.legislation.gov.uk/uksi/2015/605/made

My colleague Mark in Scotland circulated the attached brief on the new regs last week, as well as these other points on the new SE definition for WTC claimants.

* Foster carers/ kinship carers – they had not given any thought to how foster carers/ kinship carers will be treated, as they are currently classed as self-employed for income tax and working tax credit purposes,( http://www.hmrc.gov.uk/manuals/tcmanual/TCM0124100.htm )but would struggle to meet new definition,  as may have no profits, and not a commercial basis. New guidance will clarify whether they should still be treated as self-employed. (NB they will not be treated as self-employed for UC purposes according to briefing note http://webarchive.nationalarchives.gov.uk/+/http://www.dwp.gov.uk/docs/ucpbn-8-foster-carers.pdf but I can’t find this in regulations since)

* EEA migrants – aware of possible confusion as there is already a separate test of ‘genuine and effective’ and expectation of minimum earnings threshold for right to reside purposes https://www.gov.uk/government/publications/child-benefit-and-child-tax-credit-right-to-reside-test-workers-and-self-employed-people – new reg and guidance will avoid use of terms ‘genuine and effective’ and minimum earnings threshold does not apply to this new test – only view to making a profit. Guidance will clarify how tests interact.

* Also aware of preparing claimants for transfer to UC, which has the minimum income floor and assumed income, with exception in first year, but WTC test is different.

* New test ‘should not’ be used to generate retrospective overpayments going back several years with benefit of hindsight, i.e. claimant was self-employed with a view to making a profit, but after 3 years no profit, this should not mean disqualified from very start of claim, only date of decision. 

* New test is not deliberately targeted at Big Issue sellers, honest

* The requirement to register as self-employed with HMRC for self assessment purposes and provide unique tax reference to come in April 2016 – IT not currently able to cope with this as a requirement of claim.

As Ros says, there aren’t any specific transitional rules, so one would assume that all existing s/e WTC claimants could be affected by the new test when they renew their claims in the next financial year.

Thanks Paul and Ros
The policy statement refers to all ‘new’ claimants. But later it refers to ‘All claimants affected will receive information from HMRC about the new rules and the action they need to take before any awards are changed’

How do HMRC work to this I wonder.

Judy .

Paul_Treloar_CPAG - 23 March 2015 10:46 AM

My colleague Mark in Scotland circulated the attached brief on the new regs last week, as well as these other points on the new SE definition for WTC claimants.

* Foster carers/ kinship carers – they had not given any thought to how foster carers/ kinship carers will be treated, as they are currently classed as self-employed for income tax and working tax credit purposes,( http://www.hmrc.gov.uk/manuals/tcmanual/TCM0124100.htm )but would struggle to meet new definition,  as may have no profits, and not a commercial basis. New guidance will clarify whether they should still be treated as self-employed. (NB they will not be treated as self-employed for UC purposes according to briefing note http://webarchive.nationalarchives.gov.uk/+/http://www.dwp.gov.uk/docs/ucpbn-8-foster-carers.pdf but I can’t find this in regulations since)

* EEA migrants – aware of possible confusion as there is already a separate test of ‘genuine and effective’ and expectation of minimum earnings threshold for right to reside purposes https://www.gov.uk/government/publications/child-benefit-and-child-tax-credit-right-to-reside-test-workers-and-self-employed-people – new reg and guidance will avoid use of terms ‘genuine and effective’ and minimum earnings threshold does not apply to this new test – only view to making a profit. Guidance will clarify how tests interact.

* Also aware of preparing claimants for transfer to UC, which has the minimum income floor and assumed income, with exception in first year, but WTC test is different.

* New test ‘should not’ be used to generate retrospective overpayments going back several years with benefit of hindsight, i.e. claimant was self-employed with a view to making a profit, but after 3 years no profit, this should not mean disqualified from very start of claim, only date of decision. 

* New test is not deliberately targeted at Big Issue sellers, honest

* The requirement to register as self-employed with HMRC for self assessment purposes and provide unique tax reference to come in April 2016 – IT not currently able to cope with this as a requirement of claim.

As Ros says, there aren’t any specific transitional rules, so one would assume that all existing s/e WTC claimants could be affected by the new test when they renew their claims in the next financial year.

Sorry to resurrect an old thread - but was wondering if there had been any further clarification on this for foster carers. I have always advised foster carers that they are able to claim WTC if they wish, but have just had a query relating to a kinship carer on which I was a bit uncertain.  I checked the TC manual and found the guidance as above - im not so sure now whether to advise a claim or not and would be grateful for any clarification

many thanks

Hi Dizzy

Nothing substantial has changed but I think the most relevant guidance is now https://www.gov.uk/hmrc-internal-manuals/tax-credits-technical-manual/tctm02440

In these scenarios above they will be considered to have met the definition of a self-employed worker, as detailed in TCTM02415. They will, however, be expected to meet the other qualifying conditions as per TCTM02410. Where a foster carer makes a loss they may not have met the definition of a self-employed worker, as detailed in TCTM02415.

PS the definition of a foster carer for HMRC purposes is at https://www.gov.uk/hmrc-internal-manuals/business-income-manual/bim52755

Mark

Thanks Mark.  that was my concern -most foster carers don’t actually make a profit due to the disregards so there is no taxable income, and therefore nil profit for TC purposes. I think the OP referred to further information being forthcoming on this issue following the changes but I haven’t seen anything relating to this?

Hi again

Yes, the guidance was updated in June last year. It could still be a bit clearer but as I understand it from the discussion in the consultation group at the time, if profits are low or nil, they are classed as meeting the definition of self-employed for tax credits purposes - it’s only if there is a loss that there could be a problem but this would only apply if they are not using the simplified method of calculating profits.

Mark

great - thank you for that clarification Mark.