Self-employed income and expenses

Self-employed people’s gross earnings are worked out as the gross profit of the business less certain allowable expenses. For Housing Benefit and other legacy benefits, a notional figure for income tax and National Insurance Contributions is then deducted. For Universal Credit, your actual payments of tax and National Insurance are deducted when you pay them.

For legacy benefits like Housing Benefit, self-employed profits are usually worked out using the previous year's accounts or self-employed records. An average weekly figure is calculated from this. Benefits assessors can decide to use a shorter period if that seems reasonable. They can also use potential future profits if that is a better guide to your current circumstances, for example, if you have just started self-employment or if you have had a significant change to your income.

For Universal Credit, self-employed profits are worked out for your assessment period every month. Your income and expenditure is not averaged. Your actual takings and expenses each month are recorded and used to work out your benefit in the following month.

Universal Credit - Minimum income floor

For Universal Credit, if you are self-employed and your earned income is lower than your minimum income floor (MIF), the MIF will be used instead of your actual earnings when calculating your Universal Credit award, less an amount to reflect income tax and national insurance.

If you claimed Universal Credit before 23 September 2020 your Universal Credit payment will be based on your actual earnings if you have been running your business for less than 12 months. If you claimed after this date this rule applies for the 12 months from the start of your Universal Credit claim. Outside of these timeframes the DWP will assume you earn at least the ‘minimum income floor’. This is usually 35 times the national minimum wage, minus an amount for tax and NI.

What counts as income for self-employment?

Income from self-employment includes all paid directly to the self-employed person or into their bank account. It can include:

• payments received for goods and services
• tips and gratuities
• the value of any payments in kind (if you received goods or services as payment for work done, you should include what you would have usually charged)
• refunds of income tax or National Insurance contributions
• taxable grants or subsidies

If you charge VAT, you can choose to include your income with or without the VAT included. If you include VAT when adding all money received, you can also count VAT paid to HMRC as an expense. If you add up your sales without the VAT included, you cannot included VAT as an expense.

What count as expenses for self-employment?

Permitted expenses for self-employment include all reasonable, necessary and appropriate payments out of the business. Expenses that are for both business and private use can be claimed, but only the part that relates to the business - expenses for a vehicle or mobile phone, for example. 

Permitted expenses include:

• buying stock or raw materials
• purchasing, hiring or repairing tools (purchasing new tools and equipment is not allowable in Housing Benefit and other older benefits, but is allowed in Universal Credit)
• acquisition of a motor cycle, van or specially adapted business vehicle (for example, a black cab or dual control diving instruction vehicle)
• usage of a vehicle (in Universal Credit, only flat rate mileage is allowed a for an unadapted car - see below)
• travel costs (excluding travel from your home to your usual place of work)
• repayments of capital on loans used to replace or repair equipment needed for the business
• interest paid on business loans (in Universal Credit, up to £41 per month)
• VAT paid to HMRC (if VAT is declared as income)
• advertising or marketing
• stationery, phone bills and administration costs
• work clothing (excluding clothing that could be used for everyday wear)
• sundry expenses paid for the purposes of the business
• costs of employing someone, such as wages and pension contributions
• the monetary value of payments in kind 
• bad debts that have been defaulted on.

They don’t include:

• amounts for depreciation or write-offs
• domestic or personal expenses not essential to the business
• money spent on business entertainments or meals

Flat rate mileage in Universal Credit

If you use a regular car for your business, you can only include a flat rate of expenses for mileage. If you use a motorcycle, van or a specially adapted vehicle, you can choose to include either the actual costs or running your vehicle or use the flat rate mileage. 

The flat rates you can claim are:

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 a motorcycle

• 24 pence per mile

Business use of home in Universal Credit

If you run part of your business from your home you can set certain fixed amounts as expenses. You can claim expenses of:

• £10 for at least 25 hours spent working from home in one assessment period, but no more than 50 hours;
• £18 for more than 50 hours, but no more than 100 hours;
• £26 for more than 100 hours