Earnings from self-employment
Self Employed: Allowable Expenses
Self-employed people’s gross earnings are worked out as the gross profit of the business less certain allowable expenses.
Allowable expenses include:
- repayments of capital on loans used to replace or repair equipment needed for the business
- the cost of replacing or repairing equipment needed for the business
- Interest paid on business loans
- VAT paid in excess of VAT received
- expenses paid for the purposes of the business
- bad debts that have been defaulted on.
They don’t include:
- money spent on new equipment or to set up or expand the business
- amounts for depreciation or write-offs
- domestic or personal expenses not essential to the business
- money spent on business entertainments or meals
Any losses you make during the period you are receiving benefits will be counted as nil income.
As you are self employed your net earnings are likely to be different to the amount shown on the earnings page. Please say 'yes' to the question 'Net earnings different from the figure above?' and enter your net self-employed earnings directly.
Tax Credits - Gainful self employment
For tax credits, if your self-employed earnings are lower than the national minimum wage multiplied by the hours you have said you work, HMRC may carry out checks on your self employed activity. See our Gainful Self-employment page for further details.
Universal Credit - Minimum income floor
If you are affected by coronavirus, the Minimum Income Floor rules have been relaxed, which means you do not need to reach the existing minimum expected income levels to be eligible for support. See our Coronavirus help page for other support that may be available.
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. You should make sure the earnings entered in the calculator are at least the level of the MIF or your Universal Credit estimate may be too high.
This only applies if you are in the 'all work related requirements' group and have been self-employed for more than a year. The minimum income floor does not apply for the first year to allow for lower earnings during your 'start up' period.
If you are single, your minimum income floor is your individual earnings threshold, which in most cases will be the appropriate national minimum/living wage rate for your age multiplied by 35 hours – though the hours may be reduced in some circumstances due to caring responsibilities or health issues.
The national minimum/living wage rates for 2021/22 are shown below:
If you are in a couple and your earnings are below your minimum income floor a different process takes place to work out what earnings amount to use in your Universal Credit calculation.
Both members of the couple will have their MIF worked out separately using the method described above and then added together to provide a combined minimum income floor, even if one member of the couple is not self employed.
Your individual earnings from self-employment and/or employment will be added together to provide a combined earnings figure for you as a couple, to compare against your combined minimum income floor. This is to check that between you as a couple, you are earning at least the combined MIF.
If your combined earnings are less than your combined MIF, then the self-employed earnings will be replaced in the calculation with the individual MIF for that member of the couple (or the amount needed to bring the combined earnings in line with the combined MIF, if this is less).
This is a complicated part of the Universal Credit calculation and you should seek advice if you are earning below your Minimum Income Floor.
Council Tax Support - Minimum Income Floor
Some Local Authorities have also introduced a Minimum Income Floor for self-employed claimants as part of their Council Tax Support/Reduction schemes. The way this works tends to be similar to how described for Universal Credit above but some things such as the number of hours used to calculate your earnings threshold and the length of the grace period can vary from scheme to scheme so it is always best to check with your own Local Authority to see how the MIF might affect your entitlement if you are self-employed and on a low income.