Are you self-employed and receiving Universal Credit?

Did you know… your Universal Credit (UC) may reduce after one year’s ‘Start Up Period’ –  or one year after migrating from Working Tax Credit

For the first 12 months, UC usually accepts self-employment income and expenses that you report and bases your UC payment on these figures.

After 12 months, if self-employment is your main work, UC are likely to apply a Minimum Income Floor. If your earnings are less than this ‘floor’, UC will be calculated using more income than you actually earn – and your UC will go down. The Minimum Income Floor is linked with the hours you’re expected to look for work so it’s not the same for everyone. It may be lower, for example, if you have young children.

Example Ash is self-employed, earning £800 per month. He receives £525 UC per month for him and his 17-year-old son, and UC covers his rent. After one year, UC will apply a Minimum Income Floor of £1,626 reducing his UC to £70 per month plus his rent – even though his earnings have stayed the same. Ash’s Minimum Income Floor is based on him being expected to look for work 35 hours a week.

You may need to take action. Check your earnings and likely Minimum Income Floor before the 12 months are up. This gives you time to consider whether self-employment will continue to be the right decision for you.

If you decide to close your business, you will have to provide proof to UC – usually evidence that you’ve de-registered your self-employment with HMRC. It’s best to do this online so you can show your Work Coach straightaway - letters from HMRC can take weeks to arrive.

It’s complicated! Self-employment and claiming UC is complex. There’s a lot of information online, some helpful and some inaccurate – go to known websites to be sure the information you’re reading is correct.

Claiming Universal Credit when you are self-employed - GOV.UK

How Universal Credit payments work if you're self-employed - Citizens Advice

If you’d like advice, please get in touch with our Money Matters team on 0345 5211 993.