Jobseekers Allowance

The Professional Contractors Group (PCG) has recently issued guidance on whether or not contractors can now claim Job Seekers Allowance.

If you are out of contract for a particularly long period of time, to the point where it is causing you serious financial hardship, it may be wise to initiate a claim for Jobseeker’s Allowance (JSA). Your freelance status will affect your eligibility for JSA in a number of ways. You must be working less than 16 hours a week to claim JSA.

There are 2 conditions set to qualify for payments:

• Condition 1: You have to have paid or been credited with full Class 1 NICs on earnings of 26 times the weekly ‘Lower Earnings Limit’ in EITHER of the last 2 completed tax years prior to the year of your claim; a claim made in 2019/20, must have paid or been credited with full Class 1 NICs on earnings of £3,016(26 X £116.00) in 2018/19 OR £2,938(26 X £113) in 2017/2018.
• Condition 2: You must have paid or been credited with Class 1 NICs on earnings that total at least 50 times the “Lower Earnings Limit” for BOTH the last 2 complete tax years prior to the claim; a claim made in 2019/20, must have paid or had credited on earnings of £5,800 (50 X £116) in 2018/19 and £5,650 (50 x £113) in 2017/2018.
  If you plan to have  a directors' fee of £166 per week all year for 2019/2020 and then you should qualify on both conditions.

The criteria to claim

• Resident in Great Britain throughout the claim.
• Unemployed or working less than 16 hours a week.
• Not in full time education.
• Capable of work.
• Not unemployed from your own doing i.e. not dismissed from your last contract.

Information the JobCentre requires

Both types of JSA require evidence that you have stopped working as a result of market conditions and not voluntarily. For contractors, this would involve being able to provide evidence that market conditions have made your trading environment unfavourable.

You may also be required to supply details of your last 12 months earnings. These can be in the form of:

• Your management accounts.
• A balance sheet from your year-end accounts.
• Details of any business assets that you may of sold prior to your claim.
• Contact details of your accountant.

Your claims to business expenses as a contractor

You need to bear in mind when considering claiming JSA the possible impact on your entitlement to expenses from your limited company. HMRC rules state that contractors are entitled to claim tax-free travel and subsistence to their main site providing certain conditions are met. These conditions are based on a long-term commitment to contracting and an ‘overarching’ contract with your limited company. By contrast, where an individual merely has a series of fixed term assignments through a number of different vehicles, HMRC can seek to refuse the tax-free treatment.

It is recommended that you don’t ‘regularly’ claim job seekers allowance between each assignment. This will increase the risk of challenge by HMRC due to starting and stopping contracts and losing the tax relief on these expenses. The legislation is very unclear but this risk should be considered before making any claim.