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

This advice applies to Wales

You can follow the same steps as everyone else, but there are a few differences for self-employed people that you should know about before you apply.

If you're a foster carer

You can usually claim working tax credits as a self-employed person if you get a fostering allowance and:

When HMRC ask for your income, you'll need to tell them how much your fostering allowance is. When they ask for your working hours, tell them the number of hours you spend each week looking after your child. If you also work elsewhere, tell them about the income and hours for that job too.

You won’t be able to claim child tax credits for a child if you get a fostering allowance for them.

Work out your income

You'll be asked how much you earned in the previous tax year (the 12 months up to 5 April). To work this out, look on your self-assessment tax return for ‘taxable profits’, then subtract any:

  • trading losses for the business brought forward from the previous year
  • personal pension contributions for the last year
  • Gift Aid donations

Coronavirus - if you got money from the Self-Employment Income Support Scheme or Small Business Grant Fund

You should include the grant as normal trading income when you work out your income.

You should estimate your income if you haven’t completed a self-assessment tax return for the previous tax year yet.

Try to make your estimate as realistic as possible. It’s better to slightly overestimate, as HMRC will pay back any tax credits they owe you at the end of the year.

GOV.UK has a step-by-step guide to working out your income if you’re self-employed.

If your income is too high to claim

It’s still worth applying if you’re just over the limit. You won’t get any working tax credits straight away, but if your income changes and you become eligible later in the year, your claim can be backdated to when you first applied.

This is known as a ‘protective claim’, and the application process is the same.

Work out your hours

You’ll also need to let HMRC know how many hours you normally spend working for yourself each week. Include any time you bill to clients, along with any work-related activities such as:

  • giving quotes
  • travelling for work
  • visiting wholesalers
  • cleaning your workplace or equipment

If you’ve recently become self-employed, estimate how many hours you expect to spend on these things each week.

What happens next

After you’ve applied for tax credits, HMRC might get in touch to ask you some more questions about your business.

To help prove that your self-employment is genuine, and that you intend to make a profit, you should keep a business plan and copies of:

  • invoices and receipts
  • cash books
  • sales and purchase ledgers
  • wage books
  • bank statements and paying-in slips

You might think you're self-employed, for example if you're making money from something you sell, but HMRC might count it as a hobby. Check what counts as self-employment on GOV.UK.

Contact your nearest Citizens Advice if you need help, or if HMRC don’t think your self-employment is genuine. You can challenge their decision if you think it’s unfair.

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