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Tax Credits for Bizmums
Mothers who start their own businesses or opt to go self-employed can face a host of financial pressures. Fortunately, the taxman offers two important helping hands: Child Tax Credit and Working Tax Credit.
For mothers, going self-employed or starting a business can be an attractive alternative to finding a job. The hours are flexible, so you can be around for your children when they need you, and working from home is a possibility. However, there are financial pressures: buying computers and equipment, professional advice, purchasing raw materials, marketing, wages and more. Then there are the worries every working mum has – the cost and hassle of childcare and general household expenses.
The good news is that the financial pressures on your household, including the cost of childcare, could be eased by Child Tax Credit. It’s aimed at families or individuals with at least one dependent child and is paid in addition to any Child Benefit you receive, and you can claim it even if you’re not working. How much you receive depends on your income, the number of children you are responsible for, and whether any of your children has a disability.
Braving the elements
Tax Credits are worked out using what are called ‘elements’. Each element relates to a different aspect of your situation – your hours of work, your income, your children and so on. The total amount you receive is worked out by adding up all the elements that you are eligible for.
Child Tax Credit is made up of two elements: a ‘family element’, which is paid to any family responsible for a child, and a ‘child element’ for each qualifying child. You’ll receive more if you have children aged under one year, or if any of your children has a disability. Currently, couples can earn up to around £57,000 between them and still be eligible.
Working Tax Credit
Working Tax Credit is additional financial support for workers on a low income, including income from self-employment. It can be claimed even if you do not have children, although as the name implies, you can’t claim it unless you are working.
To be eligible, you must work at least 30 hours per week – unlikely to be a problem for those setting up their own business! You must also be over 25, although some people aged over 16 may also be eligible.
The income threshold is much lower than for Child Tax Credit – for example, a couple can only claim if their combined income is below £15,500.
Help with childcare
Like Child Tax Credit, Working Tax Credit is made up of different elements. The basic adult element is paid to anyone on a low income, and there are elements for single parents, those with disabilities and over-50s returning to work.
However, most important for working mums is the childcare element, which helps working households who spend money on childcare. This element can help with up to 80% of your childcare cost, up to a maximum of £175 a week for one child and £300 a week for two or more children.
Working for yourself
For both Working and Child Tax Credit purposes, income from self-employment is treated exactly the same as PAYE employment. If you trade as a limited company with yourself as director, your gross income is calculated as the salary you pay yourself, plus dividends. (Dividends are recorded under ‘other income’ on the application form, along with income from pensions, savings and investments.) If you form a partnership, your income is simply your share of the partnership’s profits, as set out in your partnership agreement (if you have one).
You don’t have to certify your working hours or your income when you apply, although you may be asked to provide evidence at a later stage. Self-employment hours can be irregular, and if your hours vary week to week you’re usually asked for the average over the last month or so.
Take the first step
To make a claim for either type of tax credit, get in touch with HM Revenue & Customs on 0845 300 3900. They will help you work out how much you will receive, based on your individual situation, and send you a form to complete in order to make your claim. Both types of tax credit can be paid directly into your bank account.
You can also use this line to update HMRC about changes in your circumstances – which is important, as you could be entitled to more cash.
