Earnings from self-employment
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
The Minimum Income Floor (MIF) allows the government to assume a certain level of self-employed profit, even if you don't earn that amount. Unless you are in a grace period, if you are self-employed, are in the 'all work related requirements' group and your earned income is lower than your MIF amount, your MIF will be used instead of your actual earnings when calculating your Universal Credit award.
From 1 August 2021 the minimum income floor (MIF) is restarting after being paused over the pandemic. From this date the MIF rules vary depending on when you started your Universal Credit claim.
See the Minimum Income Floor help page for further details about grace periods, restarting dates and MIF amounts.
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.