What should my friend do if he's erroneously claimed tax credits?
March 16, 2016 9:27 AM Subscribe
UK tax filter. My artist friend has been claiming working tax credits for his art business for 35 hours a week, but has been working for less time than that. What should he do? Snowflakes inside.
His post follows:
"So the situation is this.
I am registered self employed in the UK and have been claiming working tax credits for the last 18 months.My claim is for 35hrs/week worked and whilst that was true for the beginning it's less than that now.
The work i do is mostly commission based art projects and smaller art pieces that sell for a few dollars. As such my actual income from self employment is very little and i'm paid sporadically and infrequently.
I received a letter from HMRC this week informing me that under the new working tax credit rules there will be an assessment regarding business profitability, breakdown of my working day, business plan etc. Basically a whole bunch of stuff to make sure to make sure that i am actually doing 35hrs work a week.
I immediately shit a brick because i definitely have not been doing that for the last year and have absolutely no evidence to suggest that i ever was.
So my problems are twofold.
The first is that i've claimed for 35hrs, not the minimum of 30. I could tell them that i made a mistake on my claim, and they'll ask for the extra cash back, probably in the form of deductions from my payments, possibly with a fine on top.
The second is that if and when i do get assessed there's no way i can show that i've worked enough to really earn to tax credits in the first place. At that point i'm guessing they'll want all their money back and i'll possibly be looking a fraud charges.
I have no idea what to do at this point.
I could update my claim to 30hrs/week.
I could tell them i made a mistake and it should have been 30hrs not 35 all along.
I could cancel the claim entirely and hope they never come knocking, then spend the next few months furiously producing 'failed' projects to present as evidence in case they do.
What should i do?"
His post follows:
"So the situation is this.
I am registered self employed in the UK and have been claiming working tax credits for the last 18 months.My claim is for 35hrs/week worked and whilst that was true for the beginning it's less than that now.
The work i do is mostly commission based art projects and smaller art pieces that sell for a few dollars. As such my actual income from self employment is very little and i'm paid sporadically and infrequently.
I received a letter from HMRC this week informing me that under the new working tax credit rules there will be an assessment regarding business profitability, breakdown of my working day, business plan etc. Basically a whole bunch of stuff to make sure to make sure that i am actually doing 35hrs work a week.
I immediately shit a brick because i definitely have not been doing that for the last year and have absolutely no evidence to suggest that i ever was.
So my problems are twofold.
The first is that i've claimed for 35hrs, not the minimum of 30. I could tell them that i made a mistake on my claim, and they'll ask for the extra cash back, probably in the form of deductions from my payments, possibly with a fine on top.
The second is that if and when i do get assessed there's no way i can show that i've worked enough to really earn to tax credits in the first place. At that point i'm guessing they'll want all their money back and i'll possibly be looking a fraud charges.
I have no idea what to do at this point.
I could update my claim to 30hrs/week.
I could tell them i made a mistake and it should have been 30hrs not 35 all along.
I could cancel the claim entirely and hope they never come knocking, then spend the next few months furiously producing 'failed' projects to present as evidence in case they do.
What should i do?"
When you say that there's no way you can prove you worked 35 hours, do you mean there's no way you can prove you spent 35 hours producing art? Because the guidelines say you can also include trips to wholesalers and retailers for supplies, visits to potential clients, time spent on advertising or canvassing business, and time spent cleaning the business premises. You probably also spend time thinking about your projects even when you're not directly working on them; this is design and preparation, and totally legitimate to claim as work. Would these things help you get from 30 to 35?
posted by ubiquity at 12:20 PM on March 16, 2016 [1 favorite]
posted by ubiquity at 12:20 PM on March 16, 2016 [1 favorite]
I think your friend should talk to a tax lawyer in confidence. They cheated the system and have likely been flagged as out of the ordinary based in their income and claim. A tax lawyer with lots of experience will likely know a good route to take. Your friend did commit tax fraud, and should try and mitigate the damage as best they can.
posted by Kalmya at 2:40 PM on March 16, 2016
posted by Kalmya at 2:40 PM on March 16, 2016
If you claimed for 35 hours, but were only doing 30 hours, there will be no difference to your tax credit entitlement. You don't get more tax credits for working further hours above 30. The key will be showing that you meet the 30 hour requirement to claim at all. As said above, there are many work-related activities which can count towards the total.
Also, you only need to be *regularly* working 30 hours. This does not mean *at least* 30 hours, nor does it mean *averaging* 30 hours. A run of 30 hour weeks, with a few weeks of less than that here and there, may well be ok.
I disagree that this needs a tax lawyer's input. It's not even a tax issue. Though some solicitors do have expertise in this area, in the UK tax credits system this is essentially a welfare rights question, e.g consult Citizens Advice etc.
No one here is in a position to pronounce on whether you have commited fraud (the standard for which is much higher than simply incurring an overpayment). Many, many self-employed claimants will have received the same letter, it does not mean you are under particular scrutiny. However, you should certainly try to assess the complete number of hours you work (the above revenuebenefts link is required reading for this), and report it to HMRC, asap. If you are reporting a change to <30 hours, seek advice on the consequences.
posted by wilko at 3:09 PM on March 16, 2016
Also, you only need to be *regularly* working 30 hours. This does not mean *at least* 30 hours, nor does it mean *averaging* 30 hours. A run of 30 hour weeks, with a few weeks of less than that here and there, may well be ok.
I disagree that this needs a tax lawyer's input. It's not even a tax issue. Though some solicitors do have expertise in this area, in the UK tax credits system this is essentially a welfare rights question, e.g consult Citizens Advice etc.
No one here is in a position to pronounce on whether you have commited fraud (the standard for which is much higher than simply incurring an overpayment). Many, many self-employed claimants will have received the same letter, it does not mean you are under particular scrutiny. However, you should certainly try to assess the complete number of hours you work (the above revenuebenefts link is required reading for this), and report it to HMRC, asap. If you are reporting a change to <30 hours, seek advice on the consequences.
posted by wilko at 3:09 PM on March 16, 2016
Just on this:
I could cancel the claim entirely and hope they never come knocking, then spend the next few months furiously producing 'failed' projects to present as evidence in case they do.
Near the end of the tax year is a bad time to be contemplating this, but whenever you withdraw a tax credit claim, if you do not finalise it with HMRC, then credits received for the year will normally be deemed to be an overpayment. Tax credits aren't a weekly benefit. You need to sign off on your entitlement for the earnings period, one way or another, or else repay them. This is normally done, in the case of ongoing claims, in the July renewal process after the end of the tax year.
For evidence of 'genuine and effective' work, preparing a log or diary of any of your work that was done in reasonable expectation of payment may be a good idea. Whether payment was ultimately received is not necessarily crucial.
posted by wilko at 3:37 PM on March 16, 2016
I could cancel the claim entirely and hope they never come knocking, then spend the next few months furiously producing 'failed' projects to present as evidence in case they do.
Near the end of the tax year is a bad time to be contemplating this, but whenever you withdraw a tax credit claim, if you do not finalise it with HMRC, then credits received for the year will normally be deemed to be an overpayment. Tax credits aren't a weekly benefit. You need to sign off on your entitlement for the earnings period, one way or another, or else repay them. This is normally done, in the case of ongoing claims, in the July renewal process after the end of the tax year.
For evidence of 'genuine and effective' work, preparing a log or diary of any of your work that was done in reasonable expectation of payment may be a good idea. Whether payment was ultimately received is not necessarily crucial.
posted by wilko at 3:37 PM on March 16, 2016
This thread is closed to new comments.
posted by EndsOfInvention at 10:39 AM on March 16, 2016