Self-employment can be challenging, especially during slow periods or when you need time off due to illness, impacting your financial stability. Universal Credit offers support to self-employed individuals, but it comes with specific rules regarding income and expenses declaration, different from tax returns.
When applying for Universal Credit as a self-employed person, the process is similar to those without work or with low income from a PAYE job. After making an online claim, a visit to the local Job Centre is required for the initial appointment to prove that you are ‘gainfully self-employed,’ meaning you earn a reasonable income for the work you do.
Exceptions to the gainful self-employment rule include the first year of starting a business and being on long-term sick leave while needing the business to operate. The Minimum Income Floor is a key factor in determining gainful self-employment, where there is an expected minimum income based on the hours worked.
Reporting income must be done every assessment period, typically a month-long period based on the claim filing date. It is crucial to report actual cash received, not invoiced amounts, distinguishing it from HMRC tax returns. Some income sources do not need reporting, while certain expenses must be reasonable and solely for the business.
Differences between HMRC and DWP regulations on allowable expenses can lead to confusion. The DWP scrutinizes expenses closely, ensuring they are justifiable and necessary for the business. The system may not accommodate irregular jobs well, potentially disallowing legitimate expenses in certain industries like creative arts.
Maintaining separate records for monthly reporting and annual tax returns is advised for clarity. Businesses with turnovers exceeding £50,000 will need third-party software for Making Tax Digital compliance starting from April 2026. Keeping meticulous records aids in accurate reporting to each organization and simplifies the process when referring back to them.
