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This publication is available at https://www.gov.uk/government/publications/universal-credit-and-self-employment-quick-guide/how-to-report-your-earnings-from-self-employment
This guide is to help you understand what you need to do if you have self-employed earnings and are claiming Universal Credit.
This includes if you combine self-employment with other work, are a sub-contractor, or run your business through a company.
Claiming Universal Credit during the coronavirus (COVID-19) outbreak
Changes to Universal Credit for self-employed people as a result of the coronavirus (COVID-19) pandemic
The rules for self-employed people claiming Universal Credit were temporarily different because of the coronavirus pandemic. Since 31 July 2021, the pre-pandemic rules have started to apply again.
This means that Universal Credit will check if you are gainfully self-employed. If so, your payment will be calculated using the minimum income floor. You may be eligible for a start-up period. If you were in a start up period on 13 March 2020, your start up period will be extended.
If you already have a claim, Universal Credit will contact you about these changes before they happen.
If you are a company director or partner and are paid by your company through PAYE, any furloughed payments you receive from the Coronavirus Job Retention Scheme will be automatically taken into account when we calculate your Universal Credit payment.
Do not report these payments in your income or expenses. This will avoid them being counted twice.
Money held in your accounts
If you get a business grant or loan because your business has been affected by coronavirus, you do not need to report the money as savings and capital.
Universal Credit will not take this money into account for 12 months.
Reporting your income and expenses
If you are self-employed you must report your earnings from self-employment every month, even if you have not earned any money.
You will not get your Universal Credit payment until you have reported your income and expenses. If you report late, your payment may be delayed.
How and when to report your income and expenses
You must report your self-employed earnings on the last day of your monthly ‘assessment period’. Assessment periods are used to calculate your Universal Credit payments. An assessment period is a 1 month period, and it starts on the day you submit your claim. For example, if you first submitted your claim on the 7th of the month, your assessment period runs to the 7th of the next month.
You will get a ‘Report your income and expenses to-do’ in your Universal Credit account on the last day of each assessment period. You will also get a text message or email to remind you to report.
You should report your income online by completing the ‘Report your income and expenses to-do’ on your account.
If you are not able to report online, you must call the Universal Credit helpline to report.
What to report
Self-employed earnings are reported on a simple ‘cash in, cash out’ basis for Universal Credit. You’ll need to keep a record of and report the payments received into and paid out of your business each assessment period. This includes:
the total amount your business received
how much your business spent on different types of expenses, such as travel costs, stock, equipment and tools, work clothing and office costs
how much tax and National Insurance you paid
any money you paid into a pension
You may be asked for receipts for any expenses you claim.
You must report your self-employed income accurately. Only report expenses that are directly related to your business.
Find out more about business income and allowed expenses
Business partnerships and directors
If you are running your business through a company that you own (including where you are a director), or receive any income from a company over which you have control, this is treated as self-employed earnings. You must report all money received in by the business and all payments out of the business each assessment period.
If you pay yourself a salary using the PAYE system, you should report this as an expense when reporting self-employed earnings, so that this amount is not counted twice.
If you’re in a business partnership, you must report your share of the business income and expenses.
How your self-employed earnings are worked out
Your earnings from self-employment are calculated as the total amount your business received in, minus any payments you or your business paid out on:
pension contributions each month
These earnings count as as earned income and are used to calculate your Universal Credit payment.
Surplus earnings and losses
Your earning and losses from 1 month can be taken into account when working out how much Universal Credit you receive in a later month.
If you earn more than £2,500 over the monthly amount you can earn before your Universal Credit payment is reduced to £0, you are said to have surplus earnings. This may reduce the amount of Universal Credit you receive in later months, or perhaps mean that you can’t get any Universal Credit payment in those months.
If you make a loss in 1 month, the loss will be stored and taken into account in months when you make a profit. If the profits are not high enough to fully cover a loss, the remaining loss will be carried forward to the next month when you make a profit.
A loss will stop being taken into account once all your losses have been accounted for or if your self-employment business ends.
Universal Credit and Tax
If you are self-employed and you claim Universal Credit you must keep records and report your income for tax purposes.
HMRC has simple rules for small businesses which most people receiving Universal Credit can use. These rules (the cash basis and simplified expenses) mean you can keep records for both tax and Universal Credit in a similar way.
You’ll need to register for Self Assessment and Class 2 National Insurance as soon as you can after starting your business.
Tell us if something changes
You’ll need to report any change in circumstances, for example if you:
close your business
start a different kind of business
take a permanent job
are no longer able to work
Report changes in your online account. If you cannot use your online account, you need to call the Universal Credit helpline.
Business income and allowed expenses
You must report all payments you actually received during your monthly assessment period, regardless of when it is earned.
This could include the following:
any payments you actually received for goods and services (this can be by cash, cheque, credit or debit card, or bank transfer)
tips and gratuities
any goods or services you received for work carried out (report what you would usually have charged if the customer had paid for the work you did)
Income Tax or National Insurance contribution refunds made that relate to your self-employed earnings – you may be asked to provide invoices and receipts
If you are VAT registered you can choose to include or exclude VAT in the earnings you report, as you can for Income Tax self-assessment.
If you include VAT, you must include any VAT you charged your clients and any refunds of VAT to the business received in your total receipts.
If you do not do this you must not include VAT paid to HMRC in your permitted expenses. You must be consistent with your choice of including or excluding VAT.
Grants and payments from coronavirus business support schemes
If you received a grant from the Self-employment Income Support Scheme (SEISS), you must report this as income in the ‘Report income and expenses’ to-do.
You do not need to report any other money you get from grants paid to support businesses affected by coronavirus. This includes money you may get from the Coronavirus Job Retention Scheme to compensate you for payments made to your furloughed employees.
Payments out of the business
All permitted expenses must be reasonable. This means that they must be appropriate and necessary to the business, and not excessive.
These can include, for example:
stock or raw materials
equipment or tools, including purchase, hire or repair
advertising or marketing costs
administration costs, such as stationery or phone bills
financing costs, such as up to a maximum of £41 for interest (not capital) on all combined business loans, accounting, legal, insurance and bank charges
work clothing, for example uniforms or protective clothing, but not clothing that can also be used for everyday wear, such as a suit
- employer costs, such as:
- employee’s wages or sub-contractor costs before any deductions, including wages payable to a partner, but not a business partner
- employer’s contribution to an employee’s pension scheme
- employer’s secondary class 1 contributions
payment in kind for work done for the business – the monetary value is allowed
- VAT paid to HMRC (if you report VAT inclusive earnings as explained above)
This is not a complete list.
Travel and vehicle expenses
If you buy or use a motorbike or scooter, or a vehicle that is adapted for business use (such as a van, driving instructor dual-control car or black cab), you can either:
report the actual amount of expenses you have incurred for your business for the vehicle
tell us how many business miles you have travelled in the assessment period
If you use a normal, unadapted car (including a minicab), you must tell us how many business miles you have travelled. Read how to report this in ‘Flat rate expenses’
You cannot claim for travel to and from your ordinary place of business.
You can claim for other travel costs such as parking, tolls, congestion fees and public transport. You cannot claim for parking fines or any other fines.
You can claim costs for business premises, such as rent, heating, lighting, water charges, cleaning and business rates.
If an expense is for both business and private use, you can only claim the share spent on business use.
For example: if you work from home, you can only claim the share of costs related to that work (storage costs or time spent on call do not count). If you use a mobile phone, you can only claim the cost of business calls.
This is the amount of Income Tax you have actually paid to HMRC on your self-employed earnings during an assessment period.
You don’t need to estimate how much you owe for the month. If you haven’t actually paid any Income Tax in the assessment period, you should report £0.
National Insurance contributions
These are either Class 2 or Class 4 contributions for National Insurance that you have actually paid on your self-employment during an assessment period.
You don’t need to estimate how much you owe for the month. If you haven’t actually paid any National Insurance in the assessment period, you should report £0.
These are paid into a registered pension scheme by or on behalf of a member of that scheme. They can be paid by an individual member, who must be a UK citizen, or by a third party for them.
Flat rate deductions
Some payments out of the business must be reported as flat rate deductions.
This includes all business expenses incurred for both buying and using cars (including minicabs, but excluding dual control driving school vehicles), such as fuel, vehicle insurance, servicing, repairs, road tax, MOT.
Some additional costs can be claimed in addition, such as minicab depot fees or radio hire, where these are separate charges to any vehicle charge.
You can also choose to report some other payments as flat rate deductions, instead of separating personal and business costs. For example, where you incur expenses for a van or motorcycle, you only need to identify the number of business miles. Where you use your home for business purposes, there are also flat rate options that can be used.
More detail on the conditions and calculations that apply with regard to flat rate deductions are set out below.
Car, van or other motor vehicles
If you use a car (including a mini-cab) for your business, you must only use only the flat rate to report its running costs.
If you use a motorcycle, van or other motor vehicle designed mainly for business (such as a black cab) for your business you can choose either to:
include the actual costs of buying and running it in your permitted expenses
use the following flat rates
Flat rate for car, van or other motor vehicle
45 pence per mile for the first 833 miles in the assessment period
25 pence per mile for every mile over 833 miles in the assessment period
Flat rate for motorcycle
- 24 pence per mile
If using flat rate, when you complete the ‘Report your income and expenses to-do’ in your online account, you only need to enter the total business miles driven in each assessment period.
Using your home for your business
You can claim flat-rate expenses for using part of your home for your self-employed business.
This might be for providing services to a customer, for example as a hairdresser. It might also be for general business administration essential for the daily operation of the business, for example:
filing invoices, recording receipts and payments
sales and marketing
You can deduct expenses for heating and lighting at the following flat rates for each assessment period:
£10 for at least 25 hours, but no more than 50 hours
£18 for more than 50 hours, but no more than 100 hours
£26 for more than 100 hours
You are not allowed to claim expenses for using your home for:
completing tax returns for HMRC
self-reporting your earnings for Universal Credit
being on call
being available to carry out work
Personal use of business premises
If you live in a building primarily used for your business, such as a pub, you can claim some of the running costs as permitted expenses. The amount you can claim depends on how many people share the premises.
To work out how much you can claim you must add up the total costs that would be allowed as business expenses, solely for the running costs of the premises if the premises were used solely for business (such as rent, heating, lighting, water and business rates). Then you must reduce that total by the following amounts in each assessment period:
£350 for 1 person
£500 for 2 people
£650 for more than 2 people
For example, Fred is a self-employed publican and lives in the pub. When reporting his income Fred says that he has expenses relating to the running costs of the premises of £800 in his most recent assessment period.
Fred shares his home with his civil partner, Andre. Andre is not involved in Fred’s business. Fred claims £800 in expenses for running costs of the premises (so excluding other expenses, such as costs of stock and staff wages) and reduces this amount by £500 as both he and Andre occupy the premises.
Expenses not allowed to be deducted
You are not allowed to claim the following expenses:
expenditure on non-depreciating assets, including property, shares, or other assets held for investment
any loss from a previous assessment period
expenses for business entertainment
capital repayments on a loan
the purchase, lease or acquisition of a car (including a minicab and taxi but not a black cab or Hackney Carriage)
travel to and from your ordinary place of business
parking or other fines
wages covered by payments from the Coronavirus Job Retention Scheme