A guide to Universal Credit for the self-employed

If you’re self-employed and claiming tax credits or Housing Benefit, you will be eventually moved onto Universal Credit when it is introduced in your area. Here’s a summary of what to expect and what you can do to be prepared.

The ‘gateway’ interview

If you’re self-employed and make a claim for Universal Credit, you may be invited to a gateway interview at your local Jobcentre Plus office. The purpose of the interview is to decide whether you are in ‘gainful’ self-employment for Universal Credit purposes.

What counts as gainful self-employment?

To count as gainful, your self-employment must be organised, developed and regular and you must expect to make a profit. It should also be your main job.

At the gateway interview, you’ll need to provide evidence of your self-employed activity, for example your business plan, copies of invoices and receipts, or trading accounts from the previous year.

If the assessors decide that you are not gainfully self-employed you’ll need to look for and be available for other work instead.

Universal Credit payments and the minimum income floor

When the Department for Work and Pensions (DWP) works out your Universal Credit payments, they will normally assume you’re earning at least the ‘minimum income floor’. This is an assumed level of earnings that is used to calculate your Universal Credit when your actual earnings fall below it.

Your minimum income floor level is calculated as follows:

  • The number of hours you would be expected to work each week. This depends on your personal circumstances, for example you’d be expected to work fewer hours if you have caring responsibilities or you’re disabled.
  • This figure is then multiplied by the national minimum wage rate for your age group.
  • This figure is multiplied by 52 then divided by 12 to reach a monthly figure.
  • An amount for Income Tax and Class 2 and Class 4 National Insurance contributions is then deducted to arrive at your monthly minimum income floor.

Your Universal Credit is paid monthly in arrears directly into your bank account. The amount you get each month is linked to how much you earn.

  • If you earn more than the minimum income floor you will receive less Universal Credit.
  • If you earn less than the minimum income floor you won’t get any more Universal Credit to make up the difference.

Exemptions from the minimum income floor

Start-ups – If your business is less than 12 months old, the minimum income floor won’t apply to you for one year.

Disabled people and lone parents – If you’re self-employed and in the ‘no work-related requirements’ group, or the ‘work-focused interview’ or ‘work preparation’ group then the minimum income floor won’t apply.

If you’re exempt from the minimum income floor, then your Universal Credit payments will be calculated according to your actual income rather than your assumed income.

Reporting your income from self-employment

You must report your earnings from self-employment to the DWP every month in order to carry on getting Universal Credit. You will need to do this online by inputting your actual receipts minus permitted expenses minus Income Tax, National Insurance (Class 2 and Class 4) and any pension contributions that qualify for tax relief.

Find out more about how to calculate your income for Universal Credit on the Revenue Benefits website

Expenses

If your expenses for a particular monthly assessment period are unusually high, you can’t offset them against your income in future monthly assessment periods. This applies even if your expense payments for the month are higher than your receipts.

Business start-ups

If you are classed as gainfully self-employed and your business is less than 12 months old you will be eligible for the start-up period. During this period, you will not have to look for other paid work. However, you will have to attend an interview every three months to prove that you are still gainfully self-employed and taking appropriate steps to increase your earnings. You will be allowed one start-up period every five years.

Get ready for Universal Credit

Even if you’re not likely to be moved onto Universal Credit immediately, there are things you can do now to ensure you’re well prepared.

Get online

You’re expected to claim Universal Credit and report your monthly income online. Jobcentre Plus can provide access to the internet or tell you about local places where you can use the internet for free.

If you can’t claim online, face-to-face and telephone support will be available until you can get access to the internet.

Find out where to get online for free on the UK Online website

Get a separate bank account

It’s good practice to have a separate bank account for your business. This is especially important with Universal Credit because your payments are worked out for the whole household rather than for you as an individual. If you’re self-employed you don’t need to use a business bank account unless you want to. A personal account may be a cheaper option.

How to choose the right bank account

Joint Universal Credit payments for couples

Manage your fluctuating income

If your income and expenses go up and down from month to month, it’s a good idea to smooth it out as much as possible across the year. This is especially important with Universal Credit because it’s paid monthly in arrears. So if you have a lean month following on from a profitable month the combined total of your earnings and your Universal Credit may be low.

To manage your income peaks and troughs, work out the total amount you earn in a year. Make sure you take into account all your expenses. Divide it by 12 to get an average monthly amount. Whenever you earn more than the average in a month, try to put the extra to one side so that you can use it when you have a less profitable month.

Ask your clients for part-payments

If the nature of your business is fewer, larger jobs where you’re paid in a lump sum on delivery or completion, ask your clients whether they will allow you to bill at regular intervals, preferably monthly.

If they agree, this will help to smooth out your income from month to month.

Review your expenses

Look at your business expenses and see whether you can switch from annual to monthly payments where possible. In some cases, such as insurance premiums, you may need to shop around for a provider that doesn’t charge more for monthly payments.

Find out more

Download the leaflet ‘Universal Credit and self-employment’ from the GOV.UK website (PDF 69KB)opens in new window

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