Can I claim Universal Credit if I’m self-employed?

Can you claim Universal Credit if you are self-employed? The simple answer is yes, you can. But there are some rules you will have to follow and some criteria you must meet to claim Universal Credit alongside running your own business. This article will cover:

  • What is Universal Credit?
  • Can I claim Universal Credit if I’m self-employed?
  • How does Universal Credit work for the self-employed?
  • What do I need to prove to claim Universal Credit?

What is Universal Credit?

Universal Credit is a benefit that helps people on a low income, people who are out of work or people who cannot work, to pay for their living costs. As it’s a benefit from the Department of Work and Pensions (DWP) you have to apply and fit eligibility criteria to claim the monthly payment.

Can I claim Universal Credit if I’m self-employed?

Yes, provided that you are on a lower income from your self-employment and you meet HMRC’s qualifying criteria. You can check your eligibility here.

So you may be able to claim Universal Credit if you are self-employed, but this is dependent on your being able to prove that you are ‘gainfully self-employed’.

What is gainfully self-employed?

Gainfully self-employed is the term that HMRC uses to judge your status of self-employment. To be gainfully self-employed your business must be your main occupation, and it must be:

  • Organised. Your work must be organised in terms of you use invoices for payments, receipts for expenses and accounts for managing your operations. If you just work for cash in hand, then you will not be able to prove this.
  • Developed. Your business has been thought out and considered. You may have potentially developed a business plan as part of your preparation for starting the business.
  • Regular. You must get consistent work from your self-employment, and if it’s not frequent then at least a few customers a month, to prove you are still working.
  • Carried out with the expectation of profit. No business starts out to lose money, but you are expected to explain how your self-employment will turn a profit, even if your business isn’t there yet.

What if I am employed, and self-employed?

During your interview and ‘gainful self-employment’ test, HMRC will make a decision about which role is to be considered your main occupation. This will determine if you are eligible for Universal Credit as your self-employment must be your ‘main’ employment.

Your income from both self-employment and salary/payment by an employer through PAYE will be combined and taken into account when you put in your claim for your Universal Credit benefits.

When you apply for Universal Credit, you will be interviewed at a Jobcentre (or over the phone during COVID restrictions) to discuss your self-employment to see if you fit the above criteria for being ‘gainfully self-employed’. 

How much is Universal Credit for the self-employed?

When claiming Universal Credit as a self-employed person, it will be assumed that you are earning the same amount as someone of a similar demographic as you who is in paid work. This amount is usually what someone of the same age would earn on the National Minimum Wage, for the number of hours that you are expected to work or look for work. This amount is called the Minimum Income Floor.

If you earn more than the Minimum Income Floor, your Universal Credit payment will be based on the actual earnings that you report monthly to the Jobcentre and HMRC.

If you have been self-employed for more than a year when you start to claim Universal Credit, then the Minimum Income Floor will apply — however at the moment, during COVID restrictions, it is not being applied. 

If you have been self-employed for less than a year then the Minimum Income Floor will not be applied to your claim for up to 12 months after you become self-employed. This is known as a ‘start-up period’ provided by HMRC. During the start-up period, you won’t need to look for work or be available for other work so that you have the time and space to be able to work on building your business. You will need to show the steps you have taken to build the business and increase your earnings when meeting/speaking to your work coach at the Jobcentre.

What do I need to prove to claim Universal Credit?

If you are regarded as being gainfully self-employed whilst claiming Universal Credit you will not be expected to look or be available, for other work. This is to allow you to focus on making your business a success.

So every month while claiming Universal Credit you must report back to the DWP with the following information:

  • All payments you received in that assessment period (usually that month). This does not include invoices that you have sent out, that have not been paid yet.
  • Your permitted expenses, which are any expenses that it takes to run your business, such as petrol for travelling between customers, or equipment needed to carry out the job. You can find out more about expenses here.
  • Income tax, National Insurance contributions and any pension contributions that qualify for tax relief.

If your business makes a loss in an assessment period, if your expenses are higher than your income, then Universal Credit will take this into account when working out earnings in the next assessment periods. 

To get started with your claim you can follow HMRC’s step by step guide on claiming Universal Credit here.

How Countingup makes being self-employed easier

Financial worries can be a big part of any self-employed person’s working life. An app like Countingup makes it easier for you to manage your finances.

Countingup provides a business current account and accounting app that offers instant invoicing and automated bookkeeping features. It is saving business owners hours of time-consuming work and helping thousands keep on top of their finances. 

Find out more here to save yourself hours of accounting and financial admin. Countingup can take care of your accounting and give you one less thing to worry about.