Universal Credit if you’re self-employed

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.

The Department for Work and Pensions (DWP) call these legacy benefits. People are no longer able to make new claims for these.

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.

For more information on claiming Universal Credit, your commitments, sanctions and working while claiming, read the ‘Universal Credit & You’ leaflet at GOV.UK

If you’re in Northern Ireland, you can download a guide at nidirect

If you’re claiming Universal Credit for the first time, Citizens Advice Help to Claim service is free and confidential. It can help you:

• check if you’re entitled to Universal Credit
• get your important paperwork and documents together to speed up your application
• fill out your application online.

If certain circumstances change in your life, you might be asked to make a new claim for Universal Credit.

Significant changes of circumstances could include:

• moving in with a partner who is already getting Universal Credit
• having a new baby, which affects your Child Tax Credit claim.

If you move onto Universal Credit and have been gainfully self-employed for 12 months or more, the minimum income floor will apply to your earnings.

If you’ve been gainfully self-employed for less than 12 months, you might be classed as being in the start-up period. And the minimum income floor won’t apply for up to 12 months.

Find out what ‘minimum income floor’ means in the section below on ‘Universal Credit and the minimum income floor’.

If you’re already getting benefits that will eventually be replaced by Universal Credit, you don’t have to do anything for now.

The DWP will contact you when it's time to move onto Universal Credit. At that point, the benefits you’re claiming will stop. And you’ll have to make a new claim for Universal Credit.

If your business has been running for more than 12 months and you qualify as being gainfully self-employed, 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 and you qualify as being gainfully self-employed, you might be classed as being in the start-up period. And the minimum income floor won’t apply for up to 12 months.

If you have to make a claim for Universal Credit, you’ll 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:

• regular
• organised
• developed.

You must expect to make a profit and it should be your main job.

At the gateway interview, you’ll need to show evidence that you’re gainfully self-employed. This could include:

• receipts
• 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, and be available, for other work while you’re getting Universal Credit.

If you’ve been running your business for 12 months or longer when you claim Universal Credit, the DWP will work out your payment based on the minimum income floor.

This is an assumed level of earnings that’s 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’re 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.
• A notional amount for Income Tax and 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’ll 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’s aged 25 and is expected to work 35 hours a week.

The National Living Wage for her age group is £10.42/hour (for 2023/24). From 1 April 2024, this will change to £11.44/hour and workers aged 21 and over will be entitled to the National Living Wage. 

Her minimum income floor is worked out like this:

• 35 × £10.42 = £364.70 a week.
• £364.70 × 52 weeks = £18.964.40 a year.
• £18.964.40 ÷ 12 months = £1,580.36 a month.
• A notional amount for Income Tax and National Insurance contributions would then be deducted from £1,580.36 to arrive at the minimum income floor.
• On this amount, deductions would be £170.37 a month – based on income tax and National Insurance contributions for the tax year 2023/24.
• £1,580.36 - £170.37 = £1,409.99.
• This is the minimum amount the DWP expects Sarah will earn each month, and her payment will be based on an income of £1,409.99.
• If she earns more than this, her Universal Credit payment will go down by 55p for every £1 she earns. This is 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.

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 won’t have to look for other paid work.

However, you’ll have to attend an interview every three months to prove you’re still gainfully self-employed. And you must be doing what you can to increase your earnings.

You’ll be allowed one start-up period every five years.

If you’re self-employed and in the ‘no work-related requirements’ group, or the ‘work-focused interview’ or ‘work preparation’ group, the minimum income floor won’t apply.

If you’ve been self-employed for less than 12 months, you’ll be exempt from the minimum income floor for 12 months.

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.

Is most of your work fewer, larger jobs – where you’re paid in a lump sum on delivery or completion? Then 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.

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 who doesn’t charge more for monthly payments.

If you’re struggling with business or household debt, the Business Debtline offers a free debt advice service to self-employed people and small businesses in England, Wales and Scotland.

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.

It’s good practice to have a separate bank account for your business.

This is especially important with Universal Credit. This is 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.