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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.

You can enter your gross self-employed earnings (less the amounts shown on your accounts for allowable expenses) and let the calculator work out your net self-employed earnings automatically. Alternatively you can directly enter your net self-employed earnings.

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 and Council Tax Support - Minimum income floor

For Universal Credit, and some Council Tax Support schemes, 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.

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 are shown below:

Year 25+ 21-24 18-20 Under 18 Apprentice
2018/19 £7.83 £7.38 £5.90 £4.20 £3.70

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).

 

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