Guidance

Claiming Universal Credit when you are self-employed

Updated 9 April 2024

Reporting that you’re self-employed

In your Universal Credit account, report that you’re self-employed if you are:

• trading through a limited company
• a subcontractor or contractor
• working for yourself
• in the ‘gig economy’, such as short-term and temporary contracts

You need to report your work status so you get the correct amount of Universal Credit.

Foster carers

Universal Credit does not consider foster care as self-employment. You do not need to report your foster care allowance to us as self-employed income. We do not use your foster care allowance to calculate how much Universal Credit you get.

Self-employed interview

When you tell us you’re self-employed, we’ll ask you to attend a self-employed interview with a work coach.

At this interview we’ll decide if:

• you’re ‘gainfully self-employed’
• you qualify for a ‘start-up period’
• your business could have a similar set up to a sole-trader, if you trade through a limited company

If you do not come to this interview, you may not be able to get Universal Credit.

What being ‘gainfully self-employed’ means

At your self-employed interview, we will decide if you’re ‘gainfully self-employed’.

You’re ‘gainfully self-employed’ if your self-employed work is:

• your main job or main source of income
• organised, for example you keep records of your business activities
• developed, for example you have a business plan or are advertising the work you do
• regular, for example you have steady work now and in future
• expected to make a profit

If you can prove all these things, you are considered ‘gainfully self-employed’. This means you do not have to look for other work.

If you cannot prove all these things, you may have to look for other work if you want to claim Universal Credit.

What you need to bring

Bring as much evidence as you can to your appointment. This can be paper or digital copies.

Business details

You’ll need to show evidence of your business details.

This can include:

• business name
• business address
• the date you first started doing business
• your Unique Taxpayer Reference (UTR) from HMRC, if you have one
• VAT registration number, if you’re registered for VAT

Business records

You’ll need to bring your business records with you.

These records can include:

• invoices
• receipts
• bank statements
• tax returns
• records of customers, suppliers or contracts

Business activities

You’ll need to show evidence of your business activities. This can include:

• your business website
• business social media accounts
• any marketing activities or materials
• a business plan or portfolio

Other evidence to support your claim

You can also bring other evidence to your appointment that can support your self-employed work .

This can include:

• letters from HMRC and other official sources
• payslips, if you work for someone else as well as being self-employed
• business certificates, such as for insurance or professional accreditation

What ‘minimum income floor’ means if you’re gainfully self-employed

The minimum income floor is the amount of money an employed person in a similar situation to you would earn on the National Living Wage or National Minimum Wage, after tax and National Insurance.

You’ll find out what your minimum income floor is at your self-employed appointment.

If you earn more than the minimum income floor, we will calculate your Universal Credit payment using your actual earnings.

If you earn less than the minimum income floor, we will calculate your payment using the minimum income floor. We will only do this if you are:

• gainfully self-employed, and
• not in a start-up period

If the minimum income floor applies to you, and your income is below that floor, then your Universal Credit payment will be lower than if we had based the payment on your actual earnings. This might mean you need to look for additional work.

If you’re eligible for a ‘start-up period’

At your self-employed interview, we’ll decide if you’re eligible for a start-up period.

A start-up period is up to 12 months when you can focus on growing your business.

You will qualify for a start-up period if:

• you have not previously been gainfully self-employed while claiming Universal Credit, and
• you are taking active steps to increase your self-employed earnings

During your start-up period:

• you will not have to look for, or be available for, other work
• we will calculate your Universal Credit payment using your actual monthly earnings
• you can get support from a work coach who’s trained to work with self-employed people

You must:

• come to meetings with your work coach every few months
• show evidence that you are taking active steps to increase your self-employed earnings

If you do not come to these meetings, or cannot show this evidence, your start-up period could be ended early.

If your self-employed work changes, you are entitled to another start-up period if:

• it’s more than 5 years since your last start-up period, and
• your new self-employed business is for a different trade, profession or vocation

If your self-employed earnings are below your minimum income floor when your start-up period ends, your Universal Credit payment will be reduced.

Reporting business income and expenses

You must report your business income and expenses to Universal Credit each month.

You must do this even if:

• self-employment is not your main work or main source of income
• Universal Credit does not class you as ‘gainfully self-employed’
• you did not have any income or expenses

There’s more guidance about reporting your income and expenses from self-employment. This includes how to work out your income, and the expenses you can include.

Keeping business records

You’ll need to keep an accurate record of:

• income, or any payments into your business
• expenses, or any payments you made out of your business

Read more about keeping records for tax purposes.

How your Universal Credit payments are calculated

To calculate your Universal Credit payment, we will use whichever amount is higher (unless you are in a start-up period):

• your minimum income floor, or
• your total income for the monthly reporting period

Your total income for a monthly reporting period is all the money you received during that period, including any:

• employed earnings
• self-employed earnings
• additional earned income
• passive income, such as a pension

We calculate your self-employed earnings by:

• adding up the total income you report from your business, and
• taking off any allowed expenses

You must report your income and expenses accurately and tell us about any changes to your situation. If you do not do this you may be sanctioned.

Read more about how Universal Credit is calculated.

Profits and losses

Your self-employed earnings may vary each monthly reporting period. Universal Credit will look at your earnings over many reporting periods to help keep your payments consistent.

If you’re self-employed and make a loss, the loss will be carried over until you make a profit. This means you may get more Universal Credit until the loss has been accounted for.

Each month you report a profit, we’ll use this to balance out any previous losses. We’ll keep doing this until:

• your profits have made up for all your losses, or
• you stop being self-employed

There’s also a limit to the total amount you can earn before you receive no Universal Credit for that month. If you earn £2,500 or more over this limit, you have ‘surplus earnings’.

If you earn £2,500 or more over your limit

If you earn £2,500 or more over your limit then:

• you will get no Universal Credit
• the amount over £2,500 will be counted as earnings in the next assessment period

You will continue to get no Universal Credit until your earnings (including the amount that’s carried over) go under the limit and you become entitled to Universal Credit again.

You can read more about how your earnings affect your payments.

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 also gainfully 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.

Tell us if something changes

You must report any change in your situation if it affects your self-employed work.

Tell us as soon as possible if you:

• close your business
• significantly and continuously reduce the amount of self-employed work you do or how much you earn
• significantly and continuously increase the amount of self-employed work you do or how much you earn
• have seasonal changes that impact your business
• are no longer able to work
• start a different business
• take employed work

If you close your business or significantly reduce the amount of self-employed work you do, you may need to meet your work coach and show evidence of the changes.

You must also tell HMRC about a change to your business.

Contact us using your online account or the Universal Credit helpline.