Self-Employment And Universal Credit

Self-employment and universal credit guidelines change annually. Universal Credit is a monthly payment to help with your living costs. You may be able to get it if you’re on a low income or out of work.

Self-employment and Universal credit – Providing information about your earnings

Everyone claiming Universal Credit needs to report their self-employed earnings at the end of each monthly assessment period. This includes company directors, even those paying themselves by PAYE.

You’ll need to report payments into and out of your business in the assessment period. This includes:

  • total amount your business received
  • how much your business spent on different types of expenses, such as travel costs, stock, equipment and tools, clothing and office costs
  • how much tax and National Insurance you paid
  • any money you paid into a pension

What type of work counts for Universal Credit

All work is taken into consideration for Universal Credit. If you’re expected to look for and be available for work, then it needs to be identified whether you’re ‘gainfully self-employed’.

Gainful self-employment means that:

  • your main employment is self-employment
  • you have self-employed earnings
  • your work is organised, developed, regular and in expectation of profit

You must provide evidence about your business and earnings to your work coach, for example, your:

  • tax returns, accounts and any business plan
  • Unique Taxpayer Reference (UTR), if you’re registered for Self Assessment
  • customer and supplier lists, receipts and invoices
  • marketing materials

If you’re gainfully self-employed you’re exempt from job search responsibilities and can concentrate on growing your business and earnings.

If you’re not gainfully self-employed, you’ll need to look for other work. You still have to report any earnings from your self-employment. You can ask to be reassessed in the future.

How your Universal Credit payment is worked out

If you’re gainfully self-employed, your Universal Credit payment may be calculated using an assumed level of earnings, called a Minimum Income Floor.

It’s based on what an employed person on minimum wage would expect to earn in similar circumstances.

If you earn more than this, then your Universal Credit amount is based on your actual earnings.

If you earn less, the Minimum Income Floor is used to work out how much you can get. You may need to look for additional work to top up your income.

If you’re 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.


If you’re newly self-employed

If you’re within 12 months of starting your business, you may be eligible for a start-up period of up to 12 months.

During your start-up period your monthly earnings are used to work out your Universal Credit and the Minimum Income Floor doesn’t apply. You’ll also receive support from a work coach who’s trained to work with the self-employed.

You’ll need to attend quarterly appointments with your Work Coach, providing evidence to show that you’re still gainfully self-employed and actively taking steps to build your business.

You’re only entitled to one start-up period unless it has been more than 5 years since your previous one, and you’ve started a completely different type of self-employment.

Reporting changes in your circumstances

You’ll need to report any change in circumstances, for example, if you:

  • close your business
  • start a different kind of business
  • take a permanent job
  • are no longer able to work

Depending on the change, your gainful self-employment may need to be reassessed. Another useful article to read is New Income Tax Calculations 2021/2022

Self-employment and Universal Credit Eligibility

You may be able to get Universal Credit if:

  • you’re on a low income or out of work
  • you’re 18 or over (there are some exceptions if you’re 16 to 17)
  • you’re under State Pension age (or your partner is)
  • you and your partner have £16,000 or less in savings between you
  • you live in the UK

Spartan Accounting is a leading small business accountant in London offering our accounting services over a range of business sectors, including construction and e-commerce accounting services, and accounting for sole traders and the self-employed. Contact us today for your free business consultation to see how we can help you and your business financially.

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