Universal Credit Self-employment guide This guide is to help you understand what you need to do if you are selfemployed and wish to claim Universal Credit. Section A of this guide explains what evidence you need to bring if we ask you to come for an interview to show you are self-employed. It also tells you how and when to report your self-employed earnings for Universal Credit. Section B explains what we mean by self-employed earnings, gainful selfemployment, and how it affects you. Section A : Self-employment guide What you need to do if you are self-employed If you are self-employed we will ask you to come to an interview. For this interview you need to: take as much evidence as possible of your self-employed business keep accurate records so that you can report your self-employed earnings each month What evidence to bring to your interview At your interview you will need to show that you are gainfully self-employed. You can bring any of the following as evidence: lists of customers and suppliers invoices, receipts and contracts of services transactions record or cash book previous years trading accounts HMRC correspondence (including previous tax returns, Unique Tax Reference numbers etc.) bank statements payslips (for example, if you also work as an employee, in addition to your self-employed activity) marketing materials (e.g. business cards, flyers) and address of your business website if you have one diary of appointments business meetings or scheduled work/jobs for example 1
Cash Flow Statement (including actual figures, forecast figures and Personal Survival Budget) business plan certificates relating to your business, for example insurance certificates for business assets (e.g. a van) and/or professional accreditation certificates (e.g. Electrical Installation certificate, hair & beauty qualifications, Construction Skills card) You can also bring any other evidence you think might be relevant.. What to report monthly Each month you must accurately tell us about your income from selfemployment. This is so we can pay you the correct amount of Universal Credit. You must report at the end of each monthly assessment period. If you are in a business partnership you must report your share of the total money received by and paid out of the business. You must keep a record of all income and expenses for your business, including: cash card payments cheques payment in kind or any other method When to report You must report your self-employed earnings on the last day of each assessment period, even if you have no income. If you have no income in an assessment period you must report zero for your earnings. We will post a to-do in your Universal Credit account on the last day of each month to remind you. We calculate your Universal Credit payment each month, using assessment periods. This will usually be calculated from the day you submit your claim, and will last for one month. If waiting days apply, your assessment period will start on day 8 of your claim. You will be told your assessment period dates. Important: If you don t tell us your self-employed income each month your Universal Credit payment will be delayed or stopped. 2
How to report Call 0345 600 4272 to report earnings received from self-employment during that assessment period. This should simply be in the form of cash in, cash out. Reporting income and expenses When you report your income you must tell us the amount of income and expenses to your business. We may ask for receipts for any expenses you claim. You will need to include the following in the figures you report: A. Total income to the business (money paid in) B. Expenses Permitted expenses (with details of type and cost) Flat rate deductions (by type and by cost). For example xx miles at 45p and xx miles at 25p Tax paid National insurance paid Pension contributions B. Total expenses (money paid out) C. Net income to report (A minus B) See Appendix 1 for details of how to work out your income, and the expenses you are allowed to include. When you will be paid You will get your first payment 7 days after the end of your first assessment period. Your payment will then be made on the same date every month for as long as you are on Universal Credit. If your payment date falls on a bank holiday or weekend, you will be paid on the last working day before the bank holiday or weekend. 3
You won t get your Universal Credit payment until you have reported your self-employed earnings. The earlier you report your income, the sooner any Universal Credit will be paid. You must tell us straight away if you no longer expect to receive earnings from self-employment. Section B: self-employment earnings and gainful self-employment This section explains what is meant by self-employed earnings. It also explains what we mean by gainful self-employment and how it affects you if we decide you are in gainful self-employment. What we mean by self-employed earnings Self-employed earnings means the money you earn from carrying on a trade, profession or vocation where you are not employed by someone else. You are likely to have self-employed earnings in some of the following cases: you run your own business or businesses you have several customers at the same time you decide how, when and where you work you pay people to work for you you provide equipment for the business you don t receive wage slips from an employer, or have tax deducted directly from your earnings you do a self-assessment return to HMRC to report the income from your business You can have employed and self-employed earnings at the same time. For example, if you are running business but also have a job where you are someone s employee. Gainful self-employment in Universal Credit If you receive self-employed earnings, and you would normally have to look for work in order to claim Universal Credit, you will need to come for an interview, so we can decide if you are in gainful self-employment. 4
If we decide you are in gainful self-employment you won t have to look for or be available for other work to continue claiming Universal Credit. If you are not expected to look for work, for example because we have agreed you have a limited capacity for work, you will not need to attend a selfemployment interview, but will still need to report your self-employed earnings each month. Gainful self-employment means both that: the trade, or business from which you get your self-employed income is your main employment this work is organised, developed, regular and carried out in expectation of profit We look at the information about your business you bring to your interview to decide if you are gainfully self-employed. See Section A What evidence to bring to your interview. If we decide you are in gainful self-employment we will set a Minimum Income Floor. Minimum Income Floor: established businesses If we decide that you are in gainful self-employment for Universal Credit you will have a minimum income floor. This is an assumed level of earnings, designed to encourage and incentivise claimants to increase their earnings through developing their business. To calculate your minimum income floor level we take the number of hours you d normally have to be available for work in order to claim Universal Credit. We then multiply this by the National Minimum Wage or National Living Wage for your age group and take off notional amounts for Income Tax and National Insurance. If your actual income is above your minimum income floor level, your Universal Credit is calculated based on your actual income. If your actual income in an assessment period is below your minimum income floor level, we calculate your Universal Credit award based on your minimum income floor level. Minimum Income Floor: start-up businesses 5
You may qualify for a start-up period of up to 12 months if you set up your business less than 12 months before the date we decide you are gainfully self-employed. During this time the minimum income floor will not apply to you. Any Universal Credit payments will be calculated using your actual earnings. A start-up period may apply to you if you: are gainfully self-employed started your current self-employment less than 12 months ago have not had a previous start-up period in the last 5 years, and are taking active steps to increase your earnings towards the level your minimum income floor has been set at. During a start-up period you must come to interviews every 3 months to confirm that you are both: still gainfully self-employed taking active steps to increase your earnings, as agreed with your work coach When your start-up period ends you will have a minimum income floor applied to your earnings if you are still gainfully self-employed. Your work coach will discuss whether you are eligible for a start-up period, and set the appropriate minimum income floor level for your circumstances. If you are not in gainful self-employment If we decide that you are not in gainful self-employment for Universal Credit, you still need to report your self-employed earnings to us each assessment period. To continue claiming Universal Credit you will have to look for, and be available for, other work. If we agree that self-employment is an appropriate job goal, we may adjust your work search requirements to reflect this. Universal Credit and Tax If you are self-employed and you claim Universal Credit you must keep records and report your income for tax purposes. 6
HM Revenue and Customs have simpler rules for small businesses which most people receiving Universal Credit can use. These rules (the cash basis and simplified expenses) mean you can keep records for both tax and Universal Credit in a similar way. For more information about keeping records for tax purposes, visit https://www.gov.uk/self-employed-records More information For more information, call 0345 600 4272 or visit the Universal Credit website: For support for your self-employed business, visit https://www.gov.uk/browse/business/setting-up 7
Appendix 1 What you need to report Business income and allowed expenses Business income You must report your income during your assessment period. This could include some of the following: any payments you actually received for goods and services. This can be by cash, cheque, credit or debit card, or bank transfer any goods or services you received for work carried out. You must report what you would usually have charged if the customer had paid for the work you did Income Tax or National Insurance contribution refunds made that relate to your self-employed earnings any grants or subsidies you received if they are treated by HMRC as taxable income If you are VAT registered you can choose to include or exclude VAT in the earnings you report, as you can for Income Tax self-assessment. If you include VAT, you must include any VAT you charged your clients and any refunds of VAT to the business received in your total receipts. If you do not do this you must not include VAT paid to HMRC in your permitted expenses. You must be consistent with your choice of including or excluding VAT. Payments out of the business Permitted expenses All permitted expenses must be reasonable. This means that they must be appropriate and necessary to the business, and not excessive. Permitted expenses can include, for example: regular business costs such as rent or wages phone and travel costs VAT paid to HMRC (if you report VAT inclusive earnings as explained above) purchase of stock and equipment If you take out a loan or loans specifically for your business, you may deduct up to a total of 41 in each assessment period for interest repayments only. 8
Flat Rate deductions Some payments out must be reported as Flat Rate deductions. This includes all business expenses incurred for cars. You can choose to report other payments as Flat Rate deductions. For example, where you incur expenses for a van or motorcycle or for using your home for business purposes. See section B below for more details of Flat Rate deductions. Other deductions Income Tax This is the amount of Income Tax you have actually paid to HMRC on your self-employed earnings during an assessment period. You don t need to estimate how much you owe for the month. If you haven t actually paid any Income Tax in the assessment period, you should report 0. National Insurance contributions These are either Class 2 or Class 4 contributions for National Insurance that you have actually paid on your self-employment during an assessment period. You don t need to estimate how much you owe for the month. If you haven t actually paid any National Insurance in the assessment period, you should report 0. Pension contributions These are paid into a registered pension scheme by or on behalf of a member of that scheme. They can be paid by an individual member, who must be a UK citizen, or by a third party for them. Types of allowable Flat Rate deductions If you choose to use flat rate deduction rather than deciding how much cost is due to your business, the following conditions and calculations apply. Car, van or other motor vehicles If you use a car (Including operating a mini-cab) for your business you must use only the following Flat Rate to report its running costs. If you use a motorcycle, van or other motor vehicle designed mainly for business and not of a type commonly used for private use (such as a Blackcab), for your business you can choose either to: include the actual costs of buying and running it in your permitted expenses use the following flat rates 9
Flat rate for car, van or other motor vehicle 45 pence per mile for the first 833 miles in the assessment period, and 25 pence per mile for every mile over 833 miles in the assessment period Flat rate for motorcycle 24 pence per mile Using your home for your business You may use part of your home for your self-employed business including, for example: providing services to a customer, for example as a hairdresser general business administration essential for the daily operation of the business, like: o filing invoices, recording receipts and payments o stock taking o sales and marketing You can deduct expenses for heating and lighting at the following flat rates: 10 for at least 25 hours, but no more than 50 hours; 18 for more than 50 hours, but no more than 100 hours; 26 for more than 100 hours You are not allowed to offset using your home for: storage completing tax returns for HMRC self-reporting your earnings for Universal Credit being on call being available to carry out work Personal use of business premises 10
If you mainly use your home for your business you can claim some of the running costs as permitted expenses. The amount you can claim depends on how many people share the premises. To work out how much you can claim you must add up the total costs. Then you must reduce it by the following amounts in each assessment period: 350 for one person 500 for two people or 650 for more than two people For example, Fred is self-employed and works from home as a music teacher. He uses the downstairs of the house as a music studio and lives upstairs. When reporting his income Fred says that he has expenses relating to the home of 800 in his most recent assessment period. Fred shares his home with his civil partner, Andre. Andre is not involved in Fred s business. Fred claims 800 in permitted expenses and reduces this amount by 500 as both he and Andre occupy the premises. Expenses not allowed to be deducted You are not allowed to claim the following expenses: expenditure on non-depreciating assets, including property, shares, or other assets held for investment any loss from a previous assessment period expenses for business entertainment capital repayments on a loan 11