Working tax credit – what’s changing

Currently, self-employed individuals can claim working tax credit (WTC), provided certain conditions are met, however, HMRC are to gradually replace working tax credit and replace it with new benefit system called Universal Credit (UC).

Universal Credit is in the process of being rolled out and will eventually replace six current benefits, including working tax credit and child tax credit. UC was initially introduced in April 2013 in certain areas for testing purposes. It is hoped by July 2019, that the full new UC digital service will be made available throughout the UK. Once this is available, most individuals will no longer be able to make a claim for working tax credit or child tax credit and will be moved onto the universal tax credit system instead – subject to some exceptions.

Some of the main differences between WTC and UC include:

• UC is assessed monthly rather than annually under WTC
• There are no hours thresholds associated with UC
• UC is a fully digital online service

Self-employed who are claiming UC will be required to report their earnings monthly, rather than the current annual declaration under WTC. This will obviously create an extra tax burden for self employed individuals.

With WTC, claimants are required to state the number of hours they work per week, however the amount of UC a claimant will be entitled to will depend on their specific income and circumstances.

UC is a fully digital system and the primary process for renewing and making new claims will have to made online. HMRC have mentioned that a telephone number will be available for those who are unable to use the digital service.

To be eligible to claim UC, the following must apply to the claimant:

• Must be over the age of 18
• Must be under state pension age
• Must have savings of less than £16,000
• Must not be in full time education or training

Individuals who have savings income over £6,000 or who earn enough money to cover basic living costs will not be entitled to the full amount of UC.

The amount of UC a claimant will be entitled to will depend on individual circumstances. It should be mentioned that if you live with your partner, their income will also need to be considered, even if they are not eligible for UC.

Rennie Welch LLP accepts no liability on the basis of this article and professional advice should always be sought based on specific circumstances. For advice or assistance please contact Magnus Leonard at Rennie Welch LLP either by email at magnus.leonard@renniewelch.co.uk or by telephone on 01573 224391.