Claiming benefits if you are behind on your taxes

We know that some self-employed people, including some of those in the gig economy, may be behind with their taxes for all sorts of reasons. By those in the gig economy we mean people who use online platforms to find work ‘gigs’, such as a making a delivery or offering a taxi ride. Although you will need to sort out your taxes in the longer term, if your work has stopped or reduced and you are in an emergency situation, you might still be able to claim some welfare support from the benefits system.

Basics

Welfare benefits are paid by the government. Some depend on whether you have paid National Insurance contributions (NIC). These are usually called ‘contributory benefits’. NICs are automatically taken from your wages when you are an employee; if you are self-employed you pay NICs via the Self Assessment system.

If you are a gig worker, you are usually treated as self-employed and so you are in charge of paying any tax and NIC you owe to HM Revenue & Customs (HMRC) yourself, by completing a tax return. LITRG have a guide on 'Tax if you work in the gig economy' which will give you some of the other basic knowledge you may need about the UK tax system.

If you haven’t filed a tax return, then you may not have paid any NIC and so you may be worried that you aren’t entitled to any benefits. However, this isn’t always the case, and immediate help may still be available, as we explain below. 

What types of benefits are there?

There are two main types of benefit – means tested and non-means tested.

Some non-means tested benefits are ‘contributory’ benefits, that is benefits which are only payable if a person has paid enough NIC. Therefore, if your tax affairs are not up to date, you may not have paid enough NICs to receive contributory benefits.

However, means tested benefits don't rely on whether you have paid any NIC. Instead, they usually look at how much income you have, any savings you have and calculate whether you are entitled to welfare support either in full or to top up your income to a certain level. They may also take into account your partner's circumstances if you are part of a couple. You can get means-tested benefits by themselves or sometimes as a top-up to contribution-based benefits.

The usual benefit that people think of if they are unemployed is ‘New style’ Jobseekers Allowance. This is a contributory benefit, but it is not available to formerly self-employed people who are now unemployed.

Income-based Jobseeker's Allowance was a means tested benefit that used to be available to self-employed people who were out of work, but this has now been replaced by universal credit. See below.

I was self-employed, now I'm unemployed. Can I claim benefits?

The main means tested benefit you may be able to claim if you are no longer working and are struggling to find work is universal credit (UC). For those who have reached their state pension qualifying age, it is pension credit.

UC is gradually replacing six other benefits: working tax credit, child tax credit, housing benefit, income support, income-related employment and support allowance and income-based Jobseeker’s Allowance.

⚠️Warning: If you are already getting any of the benefits that UC is replacing you must seek advice before making a claim for UC. Any UC claim will cause those other benefits to stop immediately, and you may not be able to claim them again.

You should also be aware that UC takes into account savings and also your partner’s circumstances if you have one and are part of a couple, and their income. If their income is too high, you may not qualify for any help. You can find out more about when you have to make a joint claim with a partner on GOV.UK.

The benefits system is complicated. If any of the points above apply or you are unsure, you should seek specialist welfare rights advice before making any UC claim. They can help you understand what you might be entitled to and help you make any claims.

The Department for Work and Pensions (DWP) pays UC, and your claim is based on what support you need now, rather than what may have happened in the past, although DWP may ask you about previous earnings to help them decide whether the benefit cap applies. There are some benefit calculators online that can give you a rough idea of how much you may be entitled to but the best way to check is to speak to a welfare rights adviser. See below.

Claims for UC are usually made online and you will need to prove your identity to make the claim, but there are lots of ways you can do this. You might need to explain what has been happening with your income when you are contacted by DWP about your claim to the extent it is relevant to your work capability, claimant commitment and so on.

What if I can’t get UC?

If there is a problem with your application and this means you cannot pay for vital living costs, we provide some information about emergency help that may be available here. 

What if I get UC but then find some more work?

UC isn’t just available to those who are out of work. You can continue to claim UC if you find work and there is no upper limit to the number of hours you can work, although your earnings will usually reduce the amount of your award and sometimes they will reduce it to nil.

UC is a monthly benefit, calculated and paid in arrears, which means that the amount you get is worked out on your circumstances and the income you have received in your ‘assessment period’. You will need to provide information about any self-employed earnings in your assessment period to the DWP each month so they can calculate your UC. You should be careful not to confuse HMRC with DWP and in particular, be aware that the rules for calculating relevant figures for UC are not exactly the same as the rules for tax purposes. For example, the Trading Allowance (see below) is not recognised for UC purposes.

You can find more information about UC on our website and on GOV.UK. 

What if I haven’t filled in a tax return?

For a start, not everyone who is self-employed needs to send HMRC a tax return. This might include where you are self-employed but your total income from gig work does not exceed £1,000 and you have no other trading or miscellaneous income. In this situation the Trading Allowance can cover all of this income meaning there is no tax to pay and nothing to report to HMRC or do whatsoever. If your income is more than £1,000 you can still benefit from the Trading Allowance, as we explain in our guidance.

Even if you do need to do a tax return, you might not need to do one yet. The rules say that if you have self-employment income which you need to declare for tax purposes, you may need to notify HMRC by 5 October following the tax year in which the new self-employment began. The tax return and any payment required is then due by the following 31 January. 

For example

Flavia started working for Uber on a self-employed basis in May 2021. Flavia should tell HMRC about her new income by 5 October 2022. Her Self Assessment tax return and any tax owed will be due by 31 January 2023. Even if Flavia misses the 5 October deadline she should still notify HMRC as soon as she can. This is because as long as any tax and NIC due is paid on time (that is, by the 31 January 2023), there should be no ramifications for missing the earlier notification deadline.

So, if, like Flavia, your gig work only started recently, you might not actually be behind on anything to do with your taxes just yet.

I think I’ve got a tax problem, where can I get help?

If you have not filed any tax returns when you should have done, then you should seek advice on the best way to bring your tax affairs up to date as soon as possible. This may not be as hard as you think, as we explain below.

Bringing your tax affairs up to date by filing tax returns for past years does not necessarily mean you will have a large tax bill to pay as it depends on the amount of profit you make from your work.

However if you think you do have tax to pay and you can’t afford to pay it all at once then HMRC should allow you to pay it in affordable instalments. This is known as a ‘time to pay’ arrangement. So do not delay filing outstanding tax returns if you don’t think you can pay the tax bill that could be due. This is only likely to make matters worse. 

How can TaxAid help me sort out my taxes?

If you are on a low income, the tax charity TaxAid are familiar with these situations and can offer free, independent advice and assistance on the matter.

This can include:

• Talking to HMRC on your behalf

• Helping you to: ​

  • Work out whether you needed to file a tax return in the first place for any particular year

  • Support you to register for a tax return if you need to and have not already

  • Help you understand what income and expenses to declare

  • Complete any outstanding tax returns

  • Decide on the best course of action to take to deal with any old tax years, for instance by simply writing a letter or using the disclosure facility.

  • Appeal against any penalties charged by HMRC if you had a reasonable excuse for not having done something that you should have done. For example, there may be late filing penalties if you have registered as self-employed but then not completed or filed a tax return. You can read our guidance on reasonable excuse here. A reasonable excuse might include where you did not understand the system and needed help from, for example, TaxAid or from HMRC. In this case, you are usually expected to have taken reasonable steps to get help with your tax affairs. How difficult your tax affairs are and why, in your particular circumstances, you have found them too difficult to deal with will also be relevant when explaining why you think you have a reasonable excuse.

  • Help you understand how to negotiate ‘time to pay’ arrangements taking account of your individual health and financial circumstances if you have a tax payment which you cannot afford to pay

A case study looking at TaxAid’s help in practice can be found on their website.

Once your tax affairs are up to date, provided you continue to keep on top of them, you should find you will begin to build up a NIC record and so be in a better position to claim contributory benefits in future if you should need to do so. Some contributory benefits are available to the self-employed if you can’t work because of illness or disability, for example. The state pension also depends on whether you have paid or been credited with NIC. 

Where can I find more information or get help with benefits?

The benefits system is complicated. This article is intended to give you some basic information, but we always advise you to speak to a welfare rights adviser who can advise what you might be able to claim based on your exact circumstances.

You can use one of the following online calculators to get an idea about what benefits you may be entitled to:

• Entitled To

• Turn 2 Us

• Policy in Practice

Our Getting Help page gives details of organisations which can help with welfare rights advice, such as Citizens Advice and Advicelocal.