Claiming Universal Credit if you are 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.

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 Universal Credit were
temporarily different because of the coronavirus pandemic. After 31 July
2021, this will change and the pre-pandemic rules will start to be applied
again.

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 before 13
March 2020, your start-up period might be extended.

If you already have a claim, Universal Credit will contact you about these
changes before they happen.

The Self-Employment Income Support Scheme

You may be able to apply for a grant through the Self-employment
Income Support Scheme (SEISS).

Check if you are eligible for a grant:

https://www.gov.uk/guidance/claim-a-grant-through-the-coronavirus-
covid-19-self-employment-income-support-scheme

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What you need to do if you are self-employed
If you are self-employed we may ask you to attend a self-employment
appointment, where we check if self-employment is your main job. This
is known as being ‘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 may be shown by having invoices,
receipts, or accounts
 you are in business intending to make a profit

If we decide it is, we may consider you ‘gainfully self-employed’. This

means that:
 you’ll need to report your self-employed income and expenses to
us each month
 you won’t have to look for other work to receive Universal Credit

If we decide you’re not gainfully self-employed, you’ll need to:

 report your self-employed income and expenses to us each month
 look for and be available for other work, in order to continue to
receive Universal Credit

If you run your business through a company

If you run your business through a company, this is treated as self-

employment in Universal Credit. This includes where you are a director
and where you pay yourself through PAYE.

If you are a contractor or sub-contractor, you may also be considered

self-employed for Universal Credit purposes.

If you run your business through a company or are a sub-contractor you

will need to attend an interview so we can assess your self-employed
status and entitlement to UC.
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What to bring to your self-employment appointment

You need to bring evidence with you showing:

 your business name and address

 your Unique Taxpayer Reference (UTR) - HM Revenue & Customs
(HMRC) sends this when you register for Self Assessment
 the date you started trading as self-employed
 the time you spend each week doing self-employed work
 your earnings from self-employment
 any marketing activities you’re undertaking
 anything else you’re currently doing to increase your earnings
 your VAT registration number if you’re registered for VAT

The types of evidence you can bring include:

 lists of customers and suppliers

 invoices, receipts and contracts
 transactions record or cash book
 trading accounts
 letters from HMRC
 bank statements
 payslips (if you work for someone else as well as being self-
employed)
 marketing materials, such as business cards and flyers
 your business website address (if you have one)
 a portfolio of your work (for example, if you’re a photographer)
 a diary of business meetings or scheduled work
 a cash flow statement, including actual or forecast figures
 your business plan
 business certificates, such as insurance or professional
accreditation certificates

Bring as many of these documents as possible. You can also bring any
other evidence to support your claim.

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If you cannot show us this evidence, it may delay your claim or you may
have to look for other work. If you do not come to this appointment, you
might not be able to get Universal Credit.

If you are gainfully self employed

If we decide you are gainfully self-employed:

 you won’t be required to look for other work to receive Universal
Credit so that you can focus on running your business
 your Universal Credit payment may be calculated using an
assumed level of minimum earnings - this is called a minimum
income floor

If you are not gainfully-self employed

If we decide you are not gainfully self-employed you will need to:

 depending on your circumstances, look for and be available for

other work, in order to continue to receive Universal Credit
 report any self-employed earnings and expenses to us each month

The minimum income floor will not apply and your earnings will be based
on your actual earnings.

The minimum income floor

When the minimum income floor applies

A minimum income floor will apply if you would normally be expected

to look for and be available for work to claim UC and are found gainfully
self-employed but are not in a start-up period (more information on the
start-up period can be found on page 7).

How the minimum income floor is calculated

The minimum income floor is based on what a person in employed

work in similar circumstances to you could expect to earn at minimum
wage.

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It’s calculated by the number of hours we would expect you to look for
and be available for work if you weren’t gainfully self-employed,
multiplied by the National Minimum Wage for your age group.

It includes a deduction for Income Tax and National Insurance.

Your expected hours of work are set according to your individual

circumstances. If you have caring responsibilities or a disability, your
expected hours and minimum income floor may be adjusted to reflect
that.

The level of your minimum income floor will depend on your

individual circumstances. Your work coach will tell you what your
minimum income floor level is.

How the minimum income floor affects what you get

Universal Credit is designed to make sure that you’re better off in work,
by topping up your earnings each month while you need it.
Each month the amount you receive is calculated in part based on how
much you earn. Where your earnings rise the amount of Universal Credit
you receive can be reduced and where your earnings fall the amount of
Universal Credit can rise.
The minimum income floor works by setting a minimum amount you are
treated as having earned each month. The level it is set at is the
minimum amount used in the calculation of how much Universal Credit
you receive each month. Where your actual earnings in a month are
below your minimum income floor, we use your minimum income floor to
work out how much Universal Credit you get.
This means your Universal Credit payment will not rise to make up the
difference when your actual income is below this level. You may want to
find alternative ways to top up your income such as growing your
earnings from your business or look for employed work in addition to
your self-employment.
In months where your actual earnings are above the level of your
minimum income floor we’ll use your actual earnings to calculate how
much Universal Credit you get.

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Example:

Sarah is a 25 year old single gainfully self-employed electrician with no

caring responsibilities or disabilities. She has housing costs of £500
each month. If she wasn’t gainfully self-employed she’d be expected to
look for or be available for work for 35 hours per week at minimum wage
in order to continue to claim Universal Credit.

Her minimum income floor is set at £1227.50 per month. This means
that she is treated as having earned £1227.50 as a minimum each
month in calculating how much Universal Credit she receives.

In a month where she has actual earnings of £1100, as this is below her
minimum income floor, the amount of Universal Credit she receives is
calculated using their minimum income floor level of £1227.50.

In a month where Sarah has actual earnings of £1250, as this is above

her minimum income floor, her actual earnings of £1250 are taken into
account when calculating how much Universal Credit she receives.

Read more about how Universal Credit is calculated:

https://www.understandinguniversalcredit.gov.uk/new-to-universal-
credit/how-much-youll-get/

Changes to the minimum income floor

The level of your minimum income floor will increase in line with:

 the rate of the National Minimum or Living Wage rate applicable for
your age and
 other changes to National Minimum or Living wage levels – these
are currently uprated every year on April 1st

If you are the lead carer for a child under the age of 13 the level of your
minimum income floor will rise when:

 your youngest child reaches the age of five and

 when your youngest child reaches the age of 13

This is to reflect increases in the number of hours you’d normally be

expected to look for and be available for work.

If you are self-employed while the lead carer of a child under the age of
three you will not be considered to be gainfully self-employed but will
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need to have a Gateway interview when your youngest child turns three.
If we decide that you are gainfully self-employed a minimum income floor
may apply.

If you’re working as both self-employed and employed

Your Universal Credit payment will be worked out using your combined
earnings or any applicable minimum income floor, whichever is higher.

The start-up period – 12 months to grow your

earnings
If we find you are gainfully self-employed and you are taking active steps
to increase your earnings, you may qualify for a start-up period.

A start-up period can last for up to 12 months. During this period:

 you’ll receive support from a work coach who’s trained to work with
the self-employed
 you won't have to look for or be available for other work so that you
can focus on growing your business
 a minimum income floor will not be applied and the amount of
Universal Credit you get will be calculated based on your actual
earnings

If you qualify for the start-up period

You’ll have to come to quarterly interviews arranged with your work

coach. At these interviews you’ll need to bring evidence to show that you
are still:

 gainfully self-employed
 taking steps to increase what you earn from self-employment

If you aren’t able to do this, your start-up period could be ended. If you
fail to attend a quarterly interview your start-up period may be ended or a
sanction applied to your claim.

If you’re still gainfully self-employed when your start-up period ends

you’ll have a minimum income floor applied to the calculation of your UC
award. Your work coach will tell you if you’re eligible for a start-up
period.

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You’re only entitled to one start-up period, unless it has been more than
five years since your previous one, and you’ve started a completely
different type of self-employment.

Reporting your business 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 business income and permitted expenses. If you report late, your
payment may be delayed.

How and when to report your business 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 one-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 6 th 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
be get a text message or email to remind you to report.

If you have no income in an assessment period you must report ‘no’

when asked if you have self-employed earnings.
If you are not able to report online, you need to call the Universal Credit
helpline on 0800 328 5644 Monday to Friday, 8am to 6pm (closed on
bank holidays).

What to report

Self-employed earnings are reported on a simple ‘cash in, cash out’

basis for Universal Credit.

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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.

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.

See Appendix 1 for details of how to work out your income, and the
expenses you are allowed to include.

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:

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  permitted expenses
 tax
 National Insurance
 pension contributions each month

These earnings count as earned income and are used to calculate your
Universal Credit payment.

Surplus earnings and losses

Your earnings or losses from one 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 you receive no Universal Credit payment, 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 one 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 your self-
employed business ends.
If you are gainfully self-employed and subject to the minimum income
floor, that will still apply even if you make a loss. In months where you
make a loss, your Universal Credit payment will be calculated based on
your minimum income floor.

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.

HM Revenue and Customs 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.

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For more information about keeping records for tax purposes, read:
https://www.gov.uk/self-employed-records

You’ll need to register for Self Assessment and Class 2 National

Insurance as soon as you can after starting your business. For more
information read: https://www.gov.uk/log-in-file-self-assessment-tax-
return

Tell us if something changes

You must report any change in circumstances which affects your self-
employed work as soon as possible. Examples include if you:

 close your business

 reduce the amount of work your business does
 start a different business
 take a permanent job
 are no longer able to work
 take on new caring responsibilities, such as caring for a disabled
person or for a young child

Depending on the change, we might need to check if you:

 have the right minimum income floor

 are still gainfully self-employed

If you close your business, or significantly reduce the amount of work

your business does, you may need to show evidence of this in an
interview with your work coach. If you are gainfully self-employed you
will continue to be considered gainfully self-employed until this is done.

How to tell us if something changes

You need to report changes to us in using the ‘Report a change’ section

in your online account.

If you are not able to report online, you need to call the Universal Credit
helpline on 0800 328 5644 Monday to Friday, 8am to 6pm (closed on
bank holidays).

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More information
For more information visit Universal Credit on GOV.UK:
https://www.gov.uk/universal-credit or call the Universal credit
helpline on 0800 328 5644 Monday to Friday, 8am to 6pm (closed on
bank holidays)

For support for your self-employed business, visit

https://www.gov.uk/browse/business/setting-up

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Appendix 1 – What you need to report
Business income and allowed expenses

Business income

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. You must
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

 any grants or subsidies you received if they are treated by HMRC

as taxable income

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.
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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 receive 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.

Company directors

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 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.

Payments out of the business

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Permitted expenses

All permitted expenses must be reasonable. This means that they must
be appropriate and necessary to the business, and not excessive.

Permitted expenses can include:

 stock or raw materials
 equipment or tools, including purchase, hire or repair
 travel expenses (see below)
 business premises expenses (see below)
 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
 sundries
 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; and 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 for your business

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:
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  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. This is explained in
‘Flat rate deductions’, below.
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.

Business premises

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.

You may be asked to provide evidence of your business expenses.

Read how to report this in ‘Flat rate deductions’, below.

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
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vehicles), such as fuel, vehicle insurance, servicing, repairs, road tax,
MOT etc. Some additional costs, such as minicab depot fees or radio
hire, where these are separate charges to any vehicle charge, can be
claimed in addition.

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 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,
and
 25 pence per mile for every mile over 833 miles in the assessment
period

Flat rate for motorcycle

 24 pence per mile

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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

 stock taking
 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:
 storage
 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.
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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 (such as rent, heating, lighting, water and business
rates), if the premises were used solely for business. Then you must
reduce that total by the following amounts in each assessment period:

 £350 for one person

 £500 for two people or

 £650 for more than two 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.

Other deductions

Income Tax

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.

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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.

Pension contributions

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.

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 mini cab

and taxi but not a black cab or Hackney Carriage)

 travel to and from your ordinary place of business

 parking or other fines

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