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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 2021. 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.
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:
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.
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:
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.
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:
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:
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.
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:
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.
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.
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:
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.