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How Universal Credit works if you're self-employed

This advice applies to England

Your Universal Credit payments will be based on your monthly earnings. From 31 July, they might be based on the 'minimum income floor’ instead. 

The minimum income floor is how much the Department for Work and Pensions (DWP) expect you to earn each month - it's not the same as what you actually earn. The amount is different for each person.

The minimum income floor doesn't apply to everyone. 

If you haven’t claimed Universal Credit yet, check if you can get Universal Credit.

Working out your payments before 31 July 

The minimum income floor won’t be used to work out how much you’ll get until 31 July 2021. 

If you're working out your payments before 31 July, the amount of Universal Credit you’ll get will be based on your monthly earnings. Check how much Universal Credit you’ll get.

Check if the minimum income floor will apply to you

From 31 July, the minimum income floor might apply to you if you're in gainful self-employment. This means being self-employed is your main job, you work regularly and expect to make a profit. 

You’ll also need to be in the ‘all work-related requirements group’ - this means you’re expected to work or look for work.

If you’re not in gainful self-employment and the all work-related requirements group, the DWP won’t use the minimum income floor - they’ll use how much you actually earned to work out your payments. 

You can find out which work-related activity group you’re in by looking in your Universal Credit online account.

If you don’t have an online account, you can find your work-related activity group on your paper ‘claimant commitment’. If you can’t find your claimant commitment, ask your work coach which work-related activity group you’re in.

You might be in the all work-related requirements group when you shouldn’t be - for example, if you’re a carer or responsible for children. Check you’re in the right work-related activity group

If you're in gainful self-employment

When the DWP say you're in gainful self employment, they might not use the minimum income floor straight away - they might use your actual earnings instead. This is known as a start-up period and lasts for a year. After a year, the minimum income floor might be used to work out your payments.

If you don’t know whether the DWP have said you’re in gainful self-employment, check with your work coach. 

You won’t have a start-up period if either:

  • you’ve already had the minimum income floor used to work out your earnings for the same self-employed work 

  • you’ve already had a start-up period - for any business you’ve had in the last 5 years 

During your start-up period, you’ll need to show your work coach how you’re growing your business. If you don’t do this, the DWP can end your start-up period early and the minimum income floor will be used to work out your payments.

You can find out more about growing a business on GOV.UK 

If you're too sick to work

The DWP might use your actual earnings instead of the minimum income floor.

If you're too sick to work and it affects your ability to make a profit, call the Universal Credit helpline. Tell them about your situation and the length of time you're expected to be sick - they might change your gainful self-employment status.

If you're off sick for 7 days or more, you'll have to get a medical certificate from your doctor, sometimes called a 'fit note'. Take a photo or copy of your medical certificate before you send it to your work coach at your local Jobcentre.

Universal Credit helpline

Telephone: 0800 328 5644
Telephone (Welsh language): 0800 328 1744
Textphone: 0800 328 1344

Relay UK - if you can't hear or speak on the phone, you can type what you want to say: 18001 then 0800 328 5644

You can use Relay UK with an app or a textphone. There’s no extra charge to use it. Find out how to use Relay UK on the Relay UK website.

Video relay - if you use British Sign Language (BSL).

You can find out how to use video relay on YouTube.

Monday to Friday, 8am to 6pm

Calls are free from mobiles and landlines.

If the minimum income floor doesn't apply to you 

Your payments will be based on what you actually earn through self-employment. Check how much Universal Credit you’ll get.

You'll have to report your earnings every month to the DWP. Find out what earnings to report and how to do it.

If the DWP apply the minimum income floor when they shouldn't, you might be able to challenge their decision.

Work out your minimum income floor 

Your minimum income floor is based on the national minimum wage and the number of hours you agreed to work when you met your work coach. The number of hours is in your written agreement called a 'claimant commitment'.

These are the national minimum wage rates:

About you Hourly rate (before tax)
Age 23 or over £8.91
Age 21-22 £8.36
Age 18-20 £6.56
Age 16-17 £4.62
Apprentices aged 16-18 or first-year apprentices if you're 19 or over £4.30

To work out your minimum income floor, you need to:

  1. Multiply the minimum wage for your age group by the number of hours you’re expected to work

  2. Multiply that number by 52 

  3. Divide it by 12 to get a monthly figure

The number you’re left with is your minimum income floor. This is also known as your ‘individual earnings threshold’.  

If it’s over £797, the DWP might reduce it slightly for tax and National Insurance reasons. If you want to know how much your minimum income floor will be reduced, talk to an adviser

Example

Lorna is 31 and works as a self-employed cleaner.

Her claimant commitment says she's expected to work 25 hours a week. The minimum wage for her age group is £8.91 an hour.

Her minimum income floor is:

£8.91 x 25 hours = £222.75 per week.

£222.75 x 52 weeks = £11,583 per year.

£11,583 divided by 12 months = £965.25 per month.

The DWP take off £20.19 for income tax and National Insurance.

Her monthly minimum income floor is £965.25 - £20.19 = £945.06.

Check how the minimum income floor affects your payment

Each month, the DWP will use either your actual earnings or your minimum income floor to work out your payment. This depends on how much you earned and whether you live with a partner.

If you don’t live with a partner 

If you earned more than your minimum income floor, the DWP will use your actual earnings.

If you earned less than your minimum income floor, the DWP will work out your payment as if you'd earned the minimum income floor amount.

Once you know your minimum income floor and if it will be used to work out your payment, you can work out how much Universal Credit you’ll get.

If you need help working out how much you’ll get, talk to an adviser

Example

Ollie is single and works as a self-employed painter. His Universal Credit amount before any deductions are made is £820. 

He’s expected to work 35 hours a week. This is used to calculate Ollie’s expected monthly income, he’s 22 and the minimum wage for his age group is £8.36.

35 x £8.36 = £292.60 per week.

£292.60 x 52 weeks = £15,215.20 per year.

£15,215.20 divided by 12 months = £1,267.93 per month.

The DWP take off £100.60 for tax and National Insurance.

This makes Ollie’s minimum income floor £1,167.33 per month. 

During January, Ollie earns £400. This means his earnings are lower than his minimum income floor. The DWP will work out his payment as if he’d earned his minimum income floor - £1,167.33.

If you live with a partner

The DWP will look at both your earnings when deciding whether to apply the minimum income floor.

You’ll need to know:

  • your minimum income floor 

  • your partner’s ‘individual earnings threshold’ 

You can work out your partner’s individual earnings threshold the same way you work out your minimum income floor.

Add your partner's individual earnings threshold to your minimum income floor. This is your ‘couples earnings threshold.’

If you and your partner have earned more than your couples earnings threshold, the DWP will use how much you actually earned to work out your Universal Credit payment. Check how much Universal Credit you’ll get

If your combined earnings are less than your couples earnings threshold, the DWP will use your individual minimum income floor instead of your actual earnings. Your partner’s earnings could reduce your minimum income floor. This is a complicated calculation, talk to an adviser

Reporting your monthly earnings

You'll have to report your earnings every month to the DWP.

Find out what earnings to report and how to do it.

Manage your income and expenses from month to month

If your earnings change each month, your Universal Credit payment will also change. This can make it hard to budget. 

You can ask HMRC to let you pay income tax and National Insurance monthly instead of yearly - this is called a 'budget payment plan'.

Find out more ways to keep your self-employed income and expenses more consistent on the Money Advice Service website.

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