This page tells you more about claiming Universal Credit if you’re self-employed. If you’re self-employed and already claiming certain benefits like Tax Credits or Housing Benefit, you will be eventually moved onto Universal Credit. Find out more about what to expect and what you can do to be prepared.
Claiming Universal Credit if you’re self-employed
Living in Northern Ireland or Scotland?
In Northern Ireland, Universal Credit works differently. Find out more on the nidirect website.
In Scotland, you might be offered some choices about how your Universal Credit is paid. Read our guide to Universal Credit in Scotland.
Universal Credit is replacing the following benefits:
- Child Tax Credit.
- Income Support.
- Housing Benefit.
- Working Tax Credit.
- Income-based Jobseeker’s Allowance.
- Income related Employment and Support Allowance.
At the moment, Universal Credit mainly affects newly-unemployed single people and some couples and families.
However, if you need to make a new claim for benefits to top up your self-employed income, you might be asked to claim Universal Credit if you live in an area which offers a full service.
A full service means you will make and manage your Universal Credit claim mostly online.
If you can’t claim Universal Credit, you might be able to claim existing benefits, including:
- Housing Benefit
- Child Tax Credit
- Working Tax Credit.
If you’re self-employed and already getting the benefits to be replaced by Universal Credit, you don’t have to do anything.
The DWP will tell you when it’s time to move on to Universal Credit.
Find out more about Jobcentres offering a full service on the GOV.UK website
How do I show I’m self-employed?
If you have to make a claim for Universal Credit, you will be invited to a gateway interview at your local Jobcentre Plus office.
The purpose of the interview is to decide whether your work is what the DWP calls gainful self-employment.
To show you’re gainfully self-employed the work you do must be:
You must expect to make a profit and it should be your main job.
At the gateway interview, you’ll need to show evidence you’re gainfully self-employed. This could include:
- your business plan
- copies of invoices
- trading accounts from the previous year
- proof you’re registered as self-employed with HMRC.
If you don’t show enough evidence, the assessor might decide you’re not gainfully self-employed.
This means you’ll need to look for and be available for other work while you’re getting Universal Credit.
Universal Credit and the minimum income floor
If you’ve been running your business for 12 months or longer when you claim Universal Credit, the Department for Work and Pensions (DWP) will work out your payment based on 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 are expected to work each week. This can be up to 35 hours a week, depending 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, Class 2* and Class 4 National Insurance contributions is then deducted to arrive at your monthly minimum income floor.
Your minimum income floor is the amount the DWP uses to set your Universal Credit payment each month.
If you earn more than the minimum income floor you will get less Universal Credit.
If you earn less than the minimum income floor you won’t get any extra money to make up the difference.
Sarah has worked as a self-employed hairdresser for two years. She is aged 25 and is expected to work 35 hours a week.
The National Living Wage for her age group is £7.83.
Her minimum income floor is worked out like this:
What is the Work Allowance?
This is the amount of money you can earn before your Universal Credit payment starts to reduce.
Find out more in Universal Credit explained
- 35 × £7.83 = £274.05 per week
- £274.05 × 52 weeks = £14,250.60 per year
- £14,250.60 ÷ 12 months = £1,187.55 per month
- Income tax, Class 2 and Class 4 National Insurance contributions would then be deducted from £1,187.55 to arrive at the minimum income floor.
- On this amount, deductions would be £12.35 per month based on Class 2 NI contributions (for tax year 2018/19 these are £2.85 per week).
- £1,187.55 - £12.35 = £1,175.20
- This is the minimum amount the DWP expects Sarah will earn each month and her payment will be based on an income of £1,175.20.
- If she earns more than this, her Universal Credit payment will go down by 63p for every £1 she earns unless she qualifies for the Work Allowance.
- If she earns less than this, she won’t get any more Universal Credit to make up the difference.
Who is exempt from the minimum income floor?
If you’re exempt from the minimum income floor, your Universal Credit payments will be worked out according to your actual income rather than your assumed income.
If your business is less than 12 months old, the minimum income floor won’t apply to you for one year.
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 you’re still gainfully self-employed and be taking steps to increase your earnings.
You will be allowed one start-up period every five years.
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.
Moving from existing benefits to Universal Credit
The impact of moving from existing benefits, such as Working Tax Credits, to Universal Credit, depends on how long you’ve been self-employed.
If you’re business has been running for more than 12 months, you’ll be exempt from the minimum income floor for the first six months of your claim.
If you’ve been self-employed for less than 12 months, then you’ll be exempt from the minimum income floor for 12 months.
Reporting your income from self-employment
You must report your earnings to the DWP every month to carry on getting Universal Credit.
If you don’t supply these figures between 7 days before and 14 days after your assessment date each month, your Universal Credit payment will be suspended.
You’ll need to do this online by inputting your actual receipts minus:
- Income Tax
- Permitted expenses
- National Insurance (Class 2* and Class 4)
- Any pension contributions qualifying for tax relief.
*Plans to abolish Class 2 NICs contributions have been delayed by the government until April 2019.
How expenses affect your Universal Credit
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.
Managing 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 and based on the minimum income floor.
So if you have a lean month following on from a profitable month the combined total of your earnings and your Universal Credit might be low because if your income falls below the minimum income floor, it won’t be topped up.
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 you can use it when you have a less profitable month.
Also don’t forget to plan for infrequent bills, such as income tax.
Ask your customers for part-payments
If most of your work is fewer, larger jobs where you’re paid in a lump sum on delivery or completion, ask your customers whether they’ll 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.
For some expenses, such as insurance premiums, you might need to shop around for a provider doesn’t charge more for monthly payments.
Get specialist debt advice for self-employed people
If you’re struggling with business or household debt, Business Debtline offers a free debt advice service to self-employed people and small businesses in England, Wales and Scotland.
Getting ready for Universal Credit if you’re self-employed
Even if you’re not likely to be moved onto Universal Credit immediately, there are things you can do now to make sure you’re well prepared.
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.
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 might be a cheaper option.
More about Universal Credit if you’re self-employed