Self-employment can be challenging, especially during slow periods or when dealing with illness, which can significantly impact your financial situation.
Individuals who are self-employed have the option to apply for Universal Credit, but it comes with strict regulations regarding income and expenses declaration, which differs from standard tax return processes.
When applying for Universal Credit as a self-employed individual, the process is similar to those who are unemployed or have low income from a regular job. The initial claim is made online, followed by an in-person appointment at the local Job Centre to verify that you are “gainfully self-employed,” meaning you earn a reasonable income based on your work hours.
Exceptions to the gainful self-employment requirement include the first 12 months for new businesses and for individuals on extended sick leave but still managing their business operations during this period.
The concept of gainful self-employment is tied to the Minimum Income Floor, which sets a minimum expected income based on the hours worked. Failure to meet this floor amount may affect the Universal Credit payment calculation.
Income and expenses must be reported every assessment period, typically a month-long period starting from the claim filing date. Reporting is based on cash received, not invoiced amounts, unlike traditional HMRC tax returns.
Certain income sources, like Personal Independence Payment, may not need to be reported, but other sources such as pensions or property income should be declared. Allowable expenses for Universal Credit must be reasonable and directly related to the business.
The Universal Credit system has stringent rules on expenses, with a focus on reasonableness. Individuals are advised to maintain separate records for monthly reporting and annual tax returns, especially for businesses with turnovers exceeding £50,000, which will require compliance with Making Tax Digital regulations.
It is crucial for self-employed individuals claiming Universal Credit to carefully track and report their income and expenses, ensuring compliance with the specific rules and requirements set by the Department for Work and Pensions.