Last updated:
23/01/2023

How to claim Universal Credit when self employed

You can claim Universal Credit when self-employed. We explain how to report your earnings, how it will affect your minimum income floor, and what to do if you move from a legacy benefit.

What to do If you are self-employed and moving from existing benefits to Universal Credit

Universal Credit is replacing several benefits - known as legacy benefits:

Child Tax Credit.
Income Support.
Housing Benefit.
Working Tax Credit.
Income-based Jobseeker's Allowance.
Income-related Employment and Support Allowance.

Most people making a new claim are unable to apply for legacy benefits and will now have to apply for Universal Credit.

However, if you're self-employed and already claiming a legacy benefit, the Department for Work and Pensions (DWP) will inform you when it's time to move to Universal Credit.

The impact from moving from a legacy benefit to Universal Credit will vary depending on how long you have been self-employed and the reason you are applying for Universal Credit.

If you have had a change in circumstances

If your circumstances have changed, you will more than likely have to claim Universal Credit. This could include:

Moving in with a partner.
Moving in with a partner who claims Universal Credit.
You have a new baby who changes your Child Tax Credit claim.

If you move to Universal Credit and have been gainfully self-employed for a minimum of 12 months, you will have a minimum income floor applied to your earnings.

If you move to Universal Credit and have been gainfully self-employed for less than 12 months, you will be considered to be in the start-up period. This means the minimum income floor won't apply to you for a maximum of 12 months.

If your circumstances haven't changed

If your circumstances haven't changed the DWP will contact you when it's your time to move to Universal Credit.

If you move to Universal Credit and have been gainfully self-employed for a minimum of 12 months, you will have a minimum income floor applied to your earnings.

What work is considered as self-employed when claiming Universal Credit

When making a claim for Universal Credit as self-employed, you will be expected to attend an interview with a work coach at your local Jobcentre.

The interview will be used to determine if the DWP classes your work as gainful self-employment.

Gainful self-employment means:

You're mainly self-employed.
You can provide self-employed earnings information e.g. invoices, trading accounts, bank statements, VAT registration number if applicable e.t.c.

Your work is:

Organised.
Developed.
Regular.
Expected to make a profit.

At the interview, you must provide credible evidence about your business to your work coach, such as:

Business receipts.
Your business plan.
The previous years trading accounts (if applicable).
Proof that you're self-employed with HMRC - this will be your Unique Taxpayer Reference number.
Customer and supplier lists.
Any marketing materials you use.

If you have been classed as gainfully self-employed, you will be exempt from any job search requirements of your Universal Credit Claimant Commitment.

If you are considered not to be gainfully self-employed, you will be expected to look for other work and will need to report any earnings from your self-employed work. If you don't agree with the decision, you can challenge it, and be asked to be reviewed again in the future.

What is the minimum income floor if I'm self-employed

If you're gainfully self-employed, the DWP will calculate your Universal Credit payment each month by comparing your actual earnings with how much you are expected to earn - this is called your minimum income floor.

The minimum income floor is based on what a person on minimum wage would be expected to earn in similar circumstances to yourself.

If you earn more than your minimum income floor, it won't apply, and your Universal Credit payments will be calculated on your actual self-employment earnings.

If you earn less, the minimum income floor is used to calculate how much you can receive. In this scenario, you may need to look for more work to increase your income.

How to check if the Universal Credit minimum income floor applies to you when self- employed

The minimum income floor only applies to you if the DWP has classed you to be in the all work-related requirements group - meaning you are expected to work or look for work.

You won't be in the all-work related requirements group if one or more of the following apply to you:

You are responsible for a child who is under three years of age.
You are pregnant, and the due date is not more than 12 weeks away.
You have adopted a child within the last 12 months
You're a foster parent to a child under 16.
You have given birth in the last 15 weeks.
You care for a severely disabled person.
You are a carer for a friend or family member.
You have been classed as having limited capability for work or limited capability for work-related activity.
You are considered to be in full-time education.
You have reached pension age.

There are other situations where you also won't have the minimum income floor applied to you if you are gainfully self-employed:

You are within 12 months of being self-employed.
Too sick to work.
Have a long-term illness.

Start-up period for self-employed and Universal Credit

If your business is less than 12 months old, the DWP classifies this as a start-up period - meaning the income floor won't apply to you.

You will still be expected to attend an interview with a work coach every three months to prove that you are still gainfully self-employed and show what you are doing to increase your earnings.

Once the start-up period has ended the DWP will use your minimum income floor to calculate your Universal Credit payments.

If you're too sick to work when self-employed

If you are too ill to work, you should contact the DWP to let them know as soon as possible.

Depending on your circumstances, and the length of time you're expected to be sick, the DWP may reconsider your gainful self-employment. If you are then classified not to be gainfully self-employed, the minimum income floor will not be applied.

If you are off sick for seven days or longer, you will be required to get a fit note - known as a sick note - from your GP. You will need to send this to your work coach at the Jobcentre as soon as possible.

If you have a mental health condition

If you can no longer work because of a mental health condition, the DWP could determine that:

You now have limited capability for work-related activity (LCWRA) - meaning you won't be expected to work or prepare for work in the future.
You now have limited capability for work (LCW) - meaning you won't be required to work, but you will need to do tasks to prepare for a return to work in the future.

If you have been classed as having either LCWRA or LCW, you will no longer be in gainful self-employment, and the minimum income floor will no longer apply.

Find out more about claiming Universal Credit with a mental health condition.

How does the minimum income floor affect my Universal Credit when self-employed

As explained, the minimum income floor is the amount the DWP expects you to earn in a month, not what you earn. This amount will differ and is calculated on an individual basis.

How is the minimum income floor calculated

Your minimum income floor is calculated by the DWP, as shown below:

National minimum wage x the number of hours you agreed to work in your Claimant Commitment

You will have agreed the number of hours you would work as part of your Claimant Commitment when you first met your work coach.

Steven's Example

Steven is 23 and responsible for his seven-year-old daughter and works as a self-employed window cleaner.

As part of his Claimant Commitment, he is expected to work 25 hours a week. The minimum wage for his age is £8.91 per hour.

His minimum income floor is:

£8.91 x 25 hours = £222.75 per week
£222.75 x 52 weeks = £11,583 per year
£11,583 / 12 = £965.25 per month

The DWP would deduct £20.15 for National Insurance. He wouldn't need to pay income tax as he is earning under the tax threshold.

His minimum income floor is £968.25 - £20.15 = £948.10

How is the minimum income floor calculated if I'm making a joint claim

If you are making a joint Universal Credit claim with your partner, the DWP will consider both of your earnings to determine if the minimum income floor applies to you.

The DWP will apply a minimum income floor if both of the following apply to you:

The person self-employed earns less than the minimum income floor.
The combined earnings of you as a couple are lower than your joint minimum income floor.

Once the minimum income floor has been applied, the DWP will take further action to calculate your earnings and Universal Credit payment. We advise that you speak to your work coach or local welfare benefits advisor for more information.

How to report your self-employed earnings when claiming Universal Credit

You will need to report your self-employed earnings through the online journal at the end of every monthly Universal Credit assessment period. It's important to note that the DWP will not remind you to do so.

Your assessment period will typically start on the same day each month - one month after you have submitted your Universal Credit claim.

You will need to report the following:

The total monthly amount your business has received.
What expenses your business incurred:
- Travel costs.
- Buying new stock.
- Buying tools or equipment.
- Other costs, such as office supplies.
How much tax and National Insurance you have paid.
Any money you paid into a pension.

If you need help reporting your self-employed earnings, you should call the Universal Credit helpline.

The DWP will then check your earnings and determine if the minimum income floor applies. They will then calculate how much Universal Credit to pay you for the assessment period.

You should receive your Universal Credit within seven days of your last assessment period.

What happens if I can't report my earnings on time

If you can't give your self-employed earnings on time, the DWP may base your Universal Credit payment on your estimated earnings.

You will need to have a valid reason as to why you missed the deadline, such as:

You had a family bereavement.
You have been ill.
You have been in hospital.

If the DWP determines you don't have a valid reason, they will stop your Universal Credit claim until you report the earnings.

You should contact the DWP immediately to explain why you have reported your earnings late.

How to calculate self-employed earnings for Universal Credit

To calculate your self-employed earnings for Universal Credit, you will need to add all of your income for the assessment period - called receipts - and minus the amount you have spent on your business - called personal allowances and permitted expenses.

Personal allowances

You should minus the following personal allowances from your income if applicable:

Income tax.
National Insurance.
Pension contributions.

Permitted expenses

You should minus any expenses you have spent for your business from your income, such as:

Buying new stock.
Buying tools or equipment.
Storage space.
Business premises.
Insurance.
Interest repayment loan - you can claim up to £41 a month.
Other costs, such as office supplies.
VAT.

Vehicle cost

You can deduct the cost of your vehicle for business use from your income under your permitted expenses. The amount you can claim back depends on your type of vehicle.

If you use a car for business, you can minus a fixed amount - called a flat-rate deduction - of 45p per mile up to 10,000 miles per annum and 25p after 10,000 miles.

This is known as simplified expenses for a vehicle.

You cannot claim simplified expenses for a vehicle if you have already claimed capital allowances for it, or you have included your vehicle as an expense when you worked out your business profits.

If your vehicle is a van or motorcycle you can choose to either deduct:

The flat rate deductions (24p per mile for a motorcycle) or
The expenses of buying and using the vehicle which included:
- Petrol
- Service charges
- Repairs
- Insurance
- MOT

Using your home for business

If you use your home for business needs, you can minus this as an expense from your income using flat rate deductions.

The amount you can deduct is determined by the number of hours in the month you spent working at home for the assessment period:

Hours spent working at home	Flat rate deduction
Between 25 and 49 hours	£10
Between 50 and 99 hours	£18
More than 100 hours	£26

How to manage your income when self-employed and claiming Universal Credit

Being self-employed can mean your income and expenditures change from month to month. Because Universal Credit payments are based on your previous month's income and the minimum income floor, it is essential to manage your money.

For example, if you make less money the month after a profitable month, your combined earnings may have fallen below your minimum income floor, resulting in you having less money for the month.

To manage these potential problems, you should calculate the amount you think you will earn monthly.

To do this work out what you expect to earn in a year, minus any expenses and divide it by 12. If you earn over this amount one month, you should try and save the rest to use if you have a less profitable month in the future.