Self-employment can be challenging, especially during slow periods or when dealing with illness, as it can significantly impact your finances.
Universal Credit is an option for self-employed individuals, but it comes with strict regulations regarding the declaration of income and expenses, which can be confusing as they differ from standard tax return procedures.
Applying for Universal Credit as a self-employed person follows the same process as for those unemployed or earning low wages. The initial claim is made online, followed by an in-person visit to the local Job Centre for the first appointment.
During the visit, you must demonstrate that you are ‘gainfully self-employed,’ meaning you earn a reasonable income based on the hours and effort you put into your work.
Exceptions to this rule include the first 12 months of starting your business and periods of long-term sick leave where your business operations must continue despite your absence.
The concept of being ‘gainfully self-employed’ is tied to the Minimum Income Floor, which sets a minimum income expectation based on the hours worked. Failure to meet this minimum in an assessment period could affect your Universal Credit payment.
Reporting income and expenses is a crucial part of the process, with assessments typically running monthly from the date of your initial claim. Income reporting is based on cash received, not invoiced amounts, distinguishing it from HMRC tax returns.
Certain income sources, like Personal Independence Payment or foster care income, may not need to be reported, while others, such as pensions or property income, require declaration.
Allowable expenses for Universal Credit must be deemed ‘reasonable’ and directly related to the business. The DWP may scrutinize expenses more closely than HMRC, questioning the necessity of certain expenditures.
Maintaining separate records for monthly reporting and annual tax returns is advisable for self-employed individuals claiming Universal Credit. This practice helps ensure clarity and accuracy in reporting expenses to each entity.
The DWP’s approach to allowable expenses may not align with all types of self-employment, leading to potential disputes over what qualifies as a legitimate business cost. Appeals can be made to contest disallowed expenses, but the DWP has the final decision.
It is essential to keep detailed records and stay organized to navigate the Universal Credit system effectively, especially for self-employed individuals facing income fluctuations and varying expense allowances.