[2025] UKUT 061 (AAC)

As regards Ground 1, section 10(1) of the 2002 Act provides that a claimant for working tax credit must be engaged in “qualifying remunerative work”. Section 10(2) provides for the making of provisions as to what is, or is not, qualifying remunerative work (section 10(2)(a)), and as to the circumstances in which a person is, or is not, engaged in it (section 10(2)(b)). Those provisions are set out in the 2002 Regulations (which I have set out under ‘Legal framework’ above).

The entitlement conditions to working tax credit are set out in regulation 4 of the 2002 Regulations. The conditions relevant to the claimant’s claim to working tax credit are that:

The definition of “self-employed” in regulation 2 of the 2002 Regulations is set out in paragraph [6] above.

It was accepted by HMRC that the second and third conditions (summarised in [16 b.] and 16 c.] above were satisfied.

The claimant’s case was that he satisfied the conditions by reason of his trading of financial futures contracts as principal, which he said amounted to self-employment.

The claimant argued that, notwithstanding his substantial losses over the years in this endeavour, his trading was nevertheless carried out “on a commercial basis and with a view to the realisation of profits”, and it was “organised and regular”.

HMRC didn’t accept this, and neither did the First-tier Tribunal. They each decided that the claimant’s trading activity did not amount to “self-employment” and was not done “for payment or in expectation of payment” and so he was not, therefore, entitled to working tax credit either in the 2021-2022 tax year or the 2022-2023 tax year.

The First-tier Tribunal said that the “central question” was correctly identified by HMRC as being whether the claimant was engaged in “qualifying remunerative work as defined by the regulation by virtue of his being engaged in futures trading”.

The First-tier Tribunal found the following facts (among others):

While the claimant has made forthright criticisms of the decision making of the First-tier Tribunal, its findings of fact do not appear to me to be controversial (except that the claimant may well say in relation to g. that it ignores that many of his individual trades have been profitable). In any event, I don’t consider it to be even arguable that any of these findings of fact was not open to the First-tier Tribunal on the evidence before it.

The issue is, rather, the way that the First-tier Tribunal applied the test in regulation 4 to those facts. Judge Hobbs said that he took all the findings of fact he had made into account, and he said that those findings:

“…led to the stark conclusion that [the claimant] does not show any real level of success in undertaking the enterprise of being a futures trader. Whilst being a futures trader could be seen as a possible valid form of employment or self-employment, here the [claimant] is not able to show that he is undertaking transactions on behalf of anyone other than himself.

35.

He has no clients, no invoices to anybody and no work is undertaken for any third party. All of the transactions and consequent losses of funds has [sic] been funded by himself from his own capital resources. There are no clear recognisable receipts and expenses beyond the transaction sheets supplied from the futures brokerage.

36.

In particular the Tribunal notes he has substantial losses across a long period of time. The Tribunal agrees with [HMRC], in applying the balance of probabilities and all the relevant evidence, including the oral evidence given at the hearing. HMRC are correct to conclude that the [claimant] was engaged in the futures trading enterprise but this is not on a commercial basis. Specifically, it is not with a view to making any form of profit in either of the identified tax years or indeed in the recognisable future.

37.

The [claimant] is clearly a man of means in that he has been able to fund all losses, in excess of £100,000 across a 20 year period from his own capital. Again, this does not have the hallmarks of being a business on a commercial and realistic basis. The complete lack of client base and involvement with anyone else, as a customer, suggests the enterprise is more akin to him undertaking transactions try and [sic] mitigate the losses he has accumulated, entirely from self [sic], across the 20 year period. It appears to this Tribunal that the futures enterprise, undertaken by the [claimant], is more akin to him betting or undertaking games of chance, which is routinely leading him to make a loss year on year.

38.

If the [claimant] did not have such levels of pre-existing capital there is no way he would be able to continue to undertake that enterprise of futures trading and bear the level of losses that he has done.

39.

Taking all matters into account the Tribunal is entirely satisfied that HMRC have correctly characterised this form of enterprise as not being remunerative self-employment with his business [sic] a genuine view to making profit and having the potential to make future profit and expand his business.

40.

Given the above findings and conclusions the Tribunal considers it is bound to refuse the appeals as [HMRC] have clearly and correctly assessed that, in each of the relevant tax years concluded that the [claimant] was not in remunerative work to satisfy the conditions in paragraph 4 of the Working Tax Credit (Entitlement and Maximum Rate) Regulations 2002. This is not just about profitability; this enterprise is loss making over the entirety of the time that the Appellant has used it and shows no sign that it ever will generate anything except additional losses.

41.

The Tribunal agrees with the conclusions reached by HMRC in both matters and considers there is a failure by the [claimant] to show he meets all the 4 conditions to be regarded as remunerative work. Specifically, he is not doing this for payment or in expectation of payment.

42.

Furthermore, all the above factors point to this not being self-employed in the sense of being self-employed for tax credit purposes… Again, the evidence suggests this is not on a “commercial” basis or with a view to ”realisation of profits.” Here the Appellant has not been successful for such a long period it seems he is at best trapped trying to recoup some of the hugely significant losses he has incurred.”

At the permission stage I was satisfied that it was arguable with a realistic (as opposed to fanciful) prospect of success that the First-tier Tribunal may have misunderstood or misapplied the proper tests for entitlement to working tax credits.

I have now given the parties the opportunity to make further submissions and I have considered the matter further in the light of those submissions.

The definition of “self-employed” in the 2002 Regulations was the subject of consideration by the Upper Tribunal in JW v HMRC [2019] UKUT 114 (AAC); [2019] AACR 23. That case was raised in submissions before the First-tier Tribunal by both parties, and was listed by the First-tier Tribunal in its summary of what documents comprised the appeal bundle. However, the judge didn’t engage with what the Upper Tribunal said in JW v HMRC in his analysis of the claimant’s claimed self-employment.

In JW v HMRC the claimant (who described himself as an author, musician, publisher and promoter) was earning in the region of £20 to £60 a week from selling his work online. This involved his listing his creations for sale online, contacting traders online, meeting the public for sales, and researching and attending trade fairs. The First-tier Tribunal decided that the claimant, JW, was not self-employed because “his activities are not commercial in the sense that they are quite unprofitable and have been so for many years”. Judge Poole QC (as she then was) considered the requirement of “commerciality” in the 2002 Regulations and said:

“25.4

Using profitability as the touchstone of commerciality ignores the core meaning of “commercial”. “Commercial” is essentially about commerce, or buying and selling, and in my opinion that should be the focus of the “commercial” part of the definition of “self-employed”. Consideration has to be given to whether a business is truly engaged in buying and selling exchanges, or if there is bogus self-employment abusing the WTC system. Relevant factors are whether the business: generates goods or services by enterprise and effort; makes available and exposes goods or services for sale, for example by advertising, supplying to shops, or listing for sale online; actually makes sales, and the terms on which those sales are made. Also potentially relevant are: the age of the business; business plans for future commerce; and steps being taken to increase income from the work, all bearing in mind the dicta in JR v HMRC [2017] UKUT 334 about the extent of documentary support required of modest businesses.

…

25.7

I accept that in some circumstances profit can be relevant to whether something is viewed as commercial, but in my opinion there is limited scope, if any, to take into account profitability when deciding if a trade, profession or vocation is carried on “on a commercial basis” under the 2002 Regulations. HMRC or the tribunal will already be considering whether the trade, profession or occupation is being carried on with a view to the realisation of profits, if it is organised and regular, if the claimant is working for a set number of hours a week, and if the work is done for payment or in expectation of payment, as well as “on a commercial basis”. These tests properly applied are sufficient to achieve [the] legislative intention without a need to read in profitability…”

The upshot of Judge Poole QC’s decision was that what the First-tier Tribunal should have done was simply to “apply all of the various conditions in the 2002 Regulations in order to decide whether the claimant was eligible for WTC” (paragraph [28]). An assessment of “profitability” should not be used as a proxy for whether an enterprise is carried on “on a commercial basis”. Rather, there were separate tests to be applied, which required findings of fact to be made accordingly.

The questions that must be answered to decide whether a claimant is “self-employed” are:

Turning to the First-tier Tribunal’s decision-making in these appeals, having made his findings of fact about the claimant’s activities, the judge appears to have carried out a composite assessment of the question whether the claimant was “self-employed” (or at least he explained his decision-making as if he had made a composite decision). I don’t favour that approach because it is liable to obscure the Tribunal’s decision making.

Had the Tribunal instead taken each element of the entitlement conditions one by one and made clear findings on each one in turn that would certainly have improved its reasons and would have made the task of identifying whether its assessment of each condition to entitlement was done correctly much easier. However, that doesn’t necessarily mean that the Tribunal erred materially in law.