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Company Directors And Self-Employment

Company directors and self-employment

There are several ways to run your own business. You may be:

  • a sole trader - you have several clients or you sell goods or services for a profit, you decide when you work and when you don't, you provide your own tools and equipment and you have sole responsibility for getting the work done and the business succeeding or failing;
  • in a partnership - you register as a business with another person or company and you both take a share of the profits and losses and are jointly responsible for taxes and other liabilities;
  • a director of a limited company - you set up a company to trade through that is treated as a separate entity to you personally. The company can pay you a salary as an employee and, if it makes a profit, you can pay yourself a share of the profits in the form of a dividend on your share holding.

Sole traders and people in a partnership are treated as self-employed in the benefit system. They must report their income and expenditure and their benefits are worked out on the profits they make, or a share of the profits if they are a partnership. See income from self-employment for more detail on what to report.

Treatment of directors in legacy benefits

Directors of limited companies are not technically self-employed. If they are paid by their company it is usually in the form of an employee's salary and a share of the profits through a dividend payment. In most parts of the legacy benefits system, such as in Housing Benefit, this is how company directors are treated. Any salary they pay themselves is treated as earnings from employment, not self-employment. If they receive a dividend payment, this is not treated as income, it is treated as an increase to their savings and capital.

In the calculator, please enter any salary you pay yourself as income from employment. If you pay a dividend you do not need to enter this as income, just enter how much money you have in bank accounts or other capital holdings after you have been paid your dividend.

Treatment of directors in Universal Credit

Universal Credit treats directors of small limited companies as self-employed, even though they are not. If you are a director of a company that appears to be run very similarly to a sole trading or partnership business, you will be treated as self-employed. That is, typically directors of small companies with one or two directors.

To calculate Universal Credit, all the money that comes in to your business is treated as your income (or your share if there are multiple directors). Similarly, all expenses that come out of the business are treated as your expenses for working out your profits. Any salary or dividend that you pay yourself is ignored. In the calculator, enter all income and expenses of the business as self-employed income and expenditure. See income from self-employment for more detail on what to report.

Because directors are treated as self-employed, they can be affected by the minimum income floor in Universal Credit. See our help on the minimum income floor for more information.