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Claiming Universal Credit when self-employed
This guide is to help you understand what you need to do if you are self-employed and wish to claim Universal Credit (UC).
This includes if you combine self-employment with other work, are a sub-contractor, or run your business through a company.
Changes to Universal Credit for self-employed people as a result of the coronavirus (COVID-19) pandemic
The rules for self-employed people claiming UC 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 gainfully self-employed your business assets will not be taken into account when you make a Universal Credit claim, nor when working out how much Universal Credit you receive. If you are not closing your business, you will not need to sell your business assets to apply for Universal Credit.
Business assets include things like machinery, premises and cash held in your business account.
How Universal Credit calculates your payment
If you’re gainfully self-employed, your Universal Credit payment may be calculated using an assumed level of earnings, called a minimum income floor. This is based on what we would expect an employed person to receive in similar circumstances.
It’s calculated using the National Minimum Wage for your age group, multiplied by the number of hours you are expected to look for and be available for work. It also includes a notional deduction for tax and National Insurance.
If your self-employed earnings are below the minimum income floor we have calculated for you, we will use the minimum income floor to work out your Universal Credit payment instead of your actual earnings.
Showing that you are ‘gainfully self-employed’
When you tell us you are self-employed, we need to assess whether you are ‘gainfully self-employed’.
You need to show that:
self-employment is your main job or your main source of income
you get regular work from self-employment
your work is organised – this means you have invoices and receipts, or accounts
you expect to make a profit
You do this by providing evidence of things like your:
tax returns, accounts and any business plan
Unique Taxpayer Reference (UTR), if you’re registered for Self Assessment
customer and supplier lists, receipts and invoices
If you can show all these things you will be considered to be ‘gainfully self-employed’. This means you do not have to look for other work, and can concentrate on growing your business.
If you cannot show all these things, you might have to look for other work if you want to keep receiving Universal Credit. This depends on your circumstances and you will agree this when you meet with your work coach.
If you’re both self-employed and employed
Your Universal Credit payment will be calculated based on your combined earnings from self-employment and employment.
If you make a loss from self-employment, only your employment earnings will be used to calculate how much Universal Credit you get.
If you are not ‘gainfully self-employed’
If we decide you are not gainfully self-employed we will expect you to commit to looking for a job. You will still need to report any earnings from your self-employment so that your Universal Credit payment is correct. You can ask to be reassessed in the future.
This decision won’t affect your reporting and tax obligations to Her Majesty’s Revenue and Customs (HMRC). You must still pay any tax due on any income.
The ‘start up period’
If we decide you are gainfully self-employed, you may be eligible for a ‘start up period.’
This means that:
the minimum income floor will not be applied to you for up to a year
you will not be required to look for or take up alternative employment during that time
Your actual earnings will be taken into account to work out your Universal Credit payment during this time.
You will be expected to take steps to build your business and increase your earnings, and we will ask you to provide evidence of this at quarterly interviews with your work coach.
If you do not do this, your start up period could be ended and the minimum income floor applied to your claim.
If your self-employment changes, for example if you decided to start a different kind of business, you would not automatically get another start up period. This is because you are only entitled to 1 start-up period for each self-employment and only once every 5 years.
Reporting your income and expenses
If you are self-employed you must report your earnings from self-employment every month, even if it is zero.
You will not get your Universal Credit payment until you’ve reported your income and expenses at the end of the assessment period.
If you report late your Universal Credit payment may be delayed.
You’ll need to keep a record of all payments made into or out of the business.
If you are claiming with a partner
If you live with a partner, you both need to claim Universal Credit.
If your partner is in work
Your partner’s earnings may affect the level of minimum income floor applied to your claim in certain circumstances.
If your partner is self-employed
You would each have your own minimum income floor, calculated depending on your circumstances. These are combined to calculate your joint Universal Credit payment.
Foster carers are not treated as self-employed for Universal Credit purposes.
Reporting changes in your circumstances
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 these changes in your online account.