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Universal Credit if you're self-employed

Universal Credit can feel like a minefield and its rollout has not been without issue. In this article we explaore Universal Credit and how it affects the self employed, their tax calculations and self assessment returns in 2018. If you’re self-employed and already claiming certain benefits such as Tax Credits or Housing Benefit, you will be eventually moved onto Universal Credit. Find out more about what to expect and what you can do to be prepared.

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

At the moment, Universal Credit mainly affects newly unemployed single people and some couples and families.

However, if you need to make a new claim for benefits to top up your self-employed income, you might be asked to claim Universal Credit if you live in an area which offers a full service.

A full service means you manage your Universal Credit claim mostly online.

If you can’t claim Universal Credit, you might be able to claim existing benefits, including:

  • Housing Benefit
  • Child Tax Credit
  • Working Tax Credit

No action is required if you’re self-employed and already getting the benefits to be replaced by Universal Credit.

The DWP will tell you when it’s time to move on to Universal Credit.

Change of circumstances

Things can change and it could affect your benefits and if you are living in Universal Credit full service area, you might have to make a claim for Universal Credit instead.

Significant changes of circumstances could include:

  • Moving in with a partner who is already getting Universal Credit
  • Moving into a Universal Credit full service area
  • 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 may be classed, as being in the start up period and the minimum income floor won’t apply for up to 12 months.

Demonstrating you are self-employed

If you have to make a claim for Universal Credit, you will 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 initial benefit interviews you will need to show evidence 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 for and be available for other work while you’re getting Universal Credit.

Universal Credit and the minimum income floor

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

This is an assumed level of earnings that is 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 are expected to work each week. This can be up to 35 hours a week, depending on your personal circumstances.
  • 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
  • An amount for income tax, Class 2 and Class 4 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 will 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.

Start-ups

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 will not have to look for other paid work but you will have to attend an interview quarterly to prove you’re still gainfully self-employed and be taking steps to increase your earnings. One start-up period is allowed every five years.

Self-employment income reporting

You must report your earnings to the DWP every month to carry on getting Universal Credit.

If you don’t supply these figures between 7 days before and 14 days after your assessment date each month, your Universal Credit payment will be suspended.

You’ll need to do this online by inputting your actual receipts minus:

  • Income Tax
  • Permitted expenses
  • National Insurance (Class 2 and Class 4)
  • Any pension contributions qualifying for tax relief

Expenses

If your expenses for a particular monthly assessment period are unusually high, you will not be able to 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.