Self employed and reduction in earnings

Hello

How are people advising clients who are self employed and in receipt of tax credits and earnings have temporarily (hopefully)  dropped due to Coronavirus?  If they claim UC to top ip income they can’t go back to Tax Credits and may be worse off when their earnings increase again?

Apologies if this has been covered already but I couldn’t find.

Until something is announced, which I suspect it might be this week. We just have to hope that the removal of the MIF is permanent.

I am just being honest and tell them that I cannot give 100% correct advice as it is hard to say how long they will be affected.

As you know there are so many variables. There is scope for a reduction in hours short term under tax credits - but will this be extended so that WTC is not affected and then if they are already get HB the reduction in SE earnings should be adjusted??

I think that as this will be a long term issue then really if no other household income or savings to rely on then the only option for most will be UC!

Hi JoW
In the absence of any specific new guidance from HMRC on tax credits, I would suggest:
1. Provide estimate of final income in 2019/20 and expected income in 2020/21 - it would seem realistic for this to reduce by at least 25% in the circumstances. They must a still have a view to making a profit, but no requirement for actual profitability. This could result in an underpayment when the final decision is made for 2019/20, which should be payable as a lump sum by 31 July. It can also result in increased provisional payments starting 6 April 2020, based on estimate for 2020/21 (after adding the £2,500 disregard).
2. Assert that still normally spending required number of hours in the business - this can include maintenance, book -keeping, promotion, as stated in https://www.gov.uk/hmrc-internal-manuals/tax-credits-technical-manual/tctm02453

Hopefully there will be a change in rules or guidance to allow self-employed people to be treated as in work for WTC in this situation. If WTC ended, most may have little option but to claim UC but could be much worse off especially if have capital, or student income. NB If also get CTC then could start getting WTC again, but all tax credits would terminate if claim UC - even if not entitled to UC.

Mark

Think this is best advice.  Hours the same but earnings dropped. This is not unusual for Tax Credits.