Universal Credit When You’re Self-Employed

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universal credit when you're self-employed

Claiming Universal Credit When You’re Self-Employed could provide you with some much needed financial support:

  • While you build up your business;
  • If your earnings have taken a dip.

Universal credits help by topping up your income and then get reduced as you begin to earn more.

Here’s how you find out if you’re eligible and how to calculate your claim.

What Are Universal Credits

Universal Credit is a form of financial support, generally paid monthly. When you’re self-employed you’ll need to provide evidence that you are in business and use a different method to calculate how much universal credit you can claim.

Although when you are self-employed you are entitled to the same amount of universal credit as everyone else, the amount you actually receive will be reduced for any work you carry out.

Universal credits when you’re self-employed take into account your partners income and savings if you live together (even if they aren’t claiming as well).

If you or your partner have more than £16,000 in savings you cannot claim universal credits.

Read More: What Are Universal Credits

Calculating Universal Credits When You’re Self-Employed

When you are self-employed since earnings can be seasonal or unpredictable, DWP will calculate a figure that represents an assumed level of earnings.

This is called the Minimum Income Floor.

What is the Minimum Income Floor?

If you have been self-employed for more than 12 months, the minimum income floor will provide a level of earnings that the Government would expect to see an employed person to receive in similar circumstances to your own.

The minimum income floor is calculated using the National Minimum wage for your age group, how many hours you are expected to work (adjusted if you have children) and an estimated deduction for your tax and national insurance.

If you actual self-employment earnings are less tha the minimum income floor, your actual earnings will be used.

Even if one of you isn’t eligible for Universal Credit, their savings will still be taken into account as part of your claim.

The National Minimum wage is set according to age and for 2019/2020 they are:

Age2019/2020
Apprentice£3.90
Under 18£4.35
18 to 20£6.15
21 to 24 £7.70
25 and over£8.21

Expected working hours are set at 35 hours a week if you have no children and 25 hours a week if you have children.

Example of Calculating the Minimum Income Floor

Sam is a self-employed Uber driver over 25 with no children. Same is therefore expected to work a 35 hour week and is entitled to National Minimum Wage of £8.21.

His minimum income floor is worked out as:

  • 35 x £8.21 = £287.35 per week
  • £287.35 x 52 weeks = £14,942.20 per year
  • £14,942.20 ÷ 12 = £1,245.18 per month.

The minimum amount Sam is expected to earn is set at £1,245.18 per month and this figure will be used to calculate how much universal credit he is entitled to.

Proving You Are Self-Employed

You’ll need to provide evidence that you are truly self-employed as part of your universal credit application process. This is known as proving you are ‘Gainfully Self-Employed’.

How to Prove You Are Gainfully Self-Employed

You will be asked for various bits of information to demonstrate that you are self-employed. These are things like:

  • Tax returns;
  • Accounts;
  • Your UTR number to prove you are registered as self-employed;
  • Details of your expenses like stock, travel and equipment;
  • Details of your customers;
  • Marketing materials.

Proving you are gainfully self-employed is important since it exempts from job search responsibilities and lets you concentrate on growing your business and earnings.

If you’re not gainfully self-employed, you’ll need to look for other work, but you can ask to be reassessed at a later date.

Universal Credit if You’re Newly Self-Employed

If you’been self-employed for less than 12 months, you may be able to claim for a ‘start up period’ when it comes to calculating your universal credit.

During the start-up period, your actual monthly earnings are used to work out your Universal Credit and the Minimum Income Floor won’t apply.

You’ll also get support from a work coach who’s trained to work with the self-employed to help you grow your business.

If You’re Employed and Self-Employed

If you’re employed and self-employed the higher of your:

  • Combined earnings or
  • Minimum Income Floor

Will be used to calculate your universal credit payment.

How Savings Affect Universal Credit

Savings, either held by you or your partner, will affect your universal credit when you’re self-employed as they’re considered a source of income:

  • If you have less than £6,000 you claim will not be affected;
  • If you have between £6,000 and £16,000 in savings your claim will be tapered;
  • If you have over £16,000 in savings you cannot claim Universal Credit.

You’ll have £4.35 of income added to your earnings per £250 of savings between £6,000 and £16,000.

Example of How Savings Affect Universal Credit

If you have £8,500 in savings you’ll have £43.50 added to your monthly earnings (£8,500 – £6,000 = £2,500; £2,500/£250*£4.35).

An Example of Calculating Universal Credit When You’re Self-Employed

Susan is 27 years old, self-employed and has one child. Susan earns £1,000 per month (£12,000 per year) and has £8,000 in savings.

Under the standard rules Susan would be entitled to a monthly Universal Credit of £1,241.25 as follows:

  • Standard monthly allowance £317.82
  • Extra amount for children £277.08 
  • Childcare costs £646.35

As Susan is self-employe an adjustment needs to be made to this amount to reflect her savings and that she is still working.

Her minimum income level is calculated as £889.42 (25 hours x £8.21).

Since her actual income is higher than the minimum income level, her actual earnings will be used for calculating universal credits.

As Susan has £8,000 her income will be increased by £4.35 per £250 over the £6,000 exemption. That’s £43.50.

Her adjusted income for calculating universal credits is £1,043.50.

Since Susan is actively working her credit will need to be adjusted for the work allowance, which for her is £409 a month. This is £399.74 worked out as:

  • £1,043.5 – 409 = 634.50
  • 634.5 x 63p = £399.74

Susan will receive a universal credits of £841.51 (£1,242.25 – £399.74)

Reporting Changes in your Personal Circumstances

If your personal circumstances change you need to DWP know in case they need to reassess whether or not you are gainfully self-employed.

Changes include if you:

  • close your business;
  • start a new business;
  • find a permanent job;
  • are no longer able to work.

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