Self-employment can be challenging, especially during slow periods or when dealing with illness that forces time off work, leading to financial strain. Universal Credit is an option for self-employed individuals, but strict rules regarding income and expenses often create confusion as they differ from standard tax return regulations.
Applying for Universal Credit as a self-employed worker follows a similar process to those not working or earning low income through PAYE jobs. The initial claim is made online, followed by a mandatory visit to the local Job Centre for the first appointment.
During this visit, individuals must demonstrate being ‘gainfully self-employed,’ indicating a reasonable income based on the hours and work put in. Exceptions exist for new businesses in their first year and for those on extended sick leave requiring ongoing business operation.
The Minimum Income Floor (MIF) requirement necessitates being gainfully self-employed, except during the initial year or extended sick leave periods. Reporting income is crucial every assessment period, typically monthly, starting from the claim filing date, with income and expenses detailed accurately to avoid payment delays.
Expenses need to be reasonable and solely for business purposes, with some restrictions compared to HMRC rules. The DWP scrutinizes allowable expenses closely, potentially challenging choices on what is considered reasonable.
Universal Credit imposes stricter regulations on allowable expenses, often disallowing legitimate costs, especially for irregular job types like those in the creative arts. Robust record-keeping is advised to ensure compliance with reporting requirements for both Universal Credit and annual tax returns, especially for businesses exceeding £50,000 turnover, necessitating third-party software compliance with Making Tax Digital.
Maintaining separate records for monthly reporting and annual tax returns is recommended for clarity and ease of reference, ensuring accurate reporting to each organization. This practice aids in minimizing discrepancies and streamlining the reporting process for self-employed individuals claiming Universal Credit.