Self employment and benefits
If you or your partner are working, or thinking of starting
work, as a self employed person you might qualify for welfare
benefits to top up your income. The benefits you are entitled
to will depend on a number of things, including your age, the
number of hours you work and how much you earn.
Applies to: England, Wales, Scotland and Northern Ireland
You can read through this information sheet, or go directly to
the sections you want to read by clicking on these links:
Am I employed or self employed?
Working out if you are self employed is usually straightforward.
If you run your own small business or work for a variety of clients
and are able to choose when you work and who for, you are almost
certainly self employed.
Some people think they are self employed however, or are told
they are self employed by the people who are engaging their
services, when they are should actually be classed as workers or
Workers and employees have certain statutory rights, such as
being paid the national minimum wage.
Casual workers, people on zero hour contracts and temps (those
temporarily working for an employer where their contract is
actually with an agency) are all still usually classed as workers
You do not have to have a written contract to be considered a
worker or employee. Your regular working arrangements are more
important. There is no single legal definition of whether you are
employed or self employed. Some factors that might be considered if
the situation is unclear include:
- Whether you work for one person or organisation at a time
- Whether you have to work a set number of hours
- If you can be told how, when and where to do your work
- Whether you have to do the work yourself or are free to pay
someone else to do it.
If you are unsure what your status should be, use our Find an Adviser
tool to find further help and advice.
Do I need to register as self employed?
If you become newly self employed you should register for self
assessment with HM Revenue and Customs (HMRC) and tell them
that you are now self employed. This can be done online via
online services. This information will not automatically be
passed on to the Tax Credit office or any other agency
for the purposes of working out what benefits may be available to
you. There is no single registration process when it comes to self
employment and benefits. If you are already receiving benefits,
becoming self employed will usually count as a change of
circumstances and you should inform the relevant agencies as soon
as possible. If you are making new claims, you will do so as a self
employed person and will provide the relevant information during
the claim process.
What benefits can I claim?
When it comes to working out which benefits
you are eligible for and how much you might get, the same rules
apply whether you work for an employer or are self employed.
However, it can be a little trickier working out your hours and
earnings if you are self employed.
Benefits you might be entitled to when you are self employed
If you are self employed but are not able to work due to
illness, injury or disability, there are other benefits you
might be able to get. See: What benefits can I claim if I can't
work because of illness, injury or disability?
Self employed national insurance
National insurance is a scheme in which working people make
payments that count towards certain benefits. If you work for an
employer and you earn above a certain level (known as the 'primary
threshold') you will pay Class 1 national insurance contributions
(NIC). These will usually be deducted from your salary
automatically alongside your income tax. If you are self employed
you are responsible for paying your own national insurance
contributions. As a self employed person you will usually pay Class
2 NICs and you will also have to pay Class 4 NICs if you earn above
a certain amount.
Class 2 NICs count towards most of the contribution based
benefits that Class 1 NICs do, including Incapacity Benefit,
contributory Employment and Support Allowance, Bereavement
Benefits, State Retirement Pension and Maternity Allowance. They
won't usually count towards contribution based Jobseeker's
Allowance but it's worth remembering that your eligibility for this
will depend on your NICs over the past couple of years. If you were
previously paying Class 1 NICs as an employee and only recently
became self employed, you might still qualify for contribution
based Jobseeker's Allowance.
You don't have to pay Class 2 NICs if you earn below a certain
amount, currently up to £5,725 per year (£5965 from April 2015).
You will still have to apply to HMRC for an exemption and you might
choose to continue paying to make sure you qualify for contribution
based benefits. Class 2 NICs are paid at a flat rate of £2.70 per
week (£2.80 from April 2015). This can be paid by Direct Debit
monthly or every 6 months, or you can arrange for HMRC to bill you
twice a year. Check the HMRC website
information on Class 2 NICs for further details.
Class 4 NICs are applied as a percentage of your yearly profits
if you earn more than a certain amount, currently £7,755 per year
(£8,060 per year from April 2015). They are usually paid alongside
any tax you owe.
For more information see the
Low Incomes Tax Reform Group's national insurance pages for people
who are self employed (link opens in a new window)
Calculating your hours of work
When you are working out your hours you should count the time
you spend actually doing work and any essential activities
connected to that work. This could include the time spent
book-keeping, visiting potential clients, preparing advertising or
buying stock and equipment. If your hours vary from week to week
you should use an average. It can help to keep a note of your hours
as part of your regular book-keeping.
If the number of hours you work varies there are special rules.
If your hours of work vary in a regular way, your hours are
averaged over the ‘cycle of work’. For example, if you work three
weeks on and one week off, your cycle of work would be 4 weeks and
an average of hours over a four-week period would be
If you have no recognisable ‘cycle of work’, then the average of
hours over the five weeks prior to your claim for benefit is
usually used. There are special rules if you only work during
term time or if you do seasonal work.
For more information see our information about How to calculate hours of paid work.
Calculating your earnings
Your earnings from self employment will count as income when
working out what benefits might be available to you.
For Working Tax Credit your earnings
are the taxable profits you made from self employment in a year.
This is the figure used on your tax return to work out how much tax
you have to pay. This means that the Tax Credits
office will usually use your self assessment tax return to
work out how much Tax Credits you should get. If you have not
completed your tax return, you can provide an estimate of your
To work out your taxable profit you deduct allowable
business expenses from your annual turnover figure. The Notes that accompany
the tax credit claim form (link opens in a new window PDF file size
3,144 kb) explain more about working out taxable profit.
For Income Support, Jobseeker’s Allowance, Housing Benefit
(HB England, Scotland, Wales) (HB Northern Ireland) and Council Tax Support, your earnings will be the
net profit you make in a year. This is usually the last tax year
(the tax year runs from 6 April each year and ends on 5 April the
following year); if this is not possible for example because you
started self employment recently or part way through the tax year,
you may be able to use an average of your profits over a shorter
Your ‘net profit’ is worked out by taking the figure for your
earnings and making deductions for reasonable expenses, tax,
national insurance contributions, and half of any pension
If you work as a childminder, there is a special rule for
working out your earnings. One third of your gross earnings count
as income and then deductions are made for tax, national insurance
contributions, and half of any contribution to a pension.
When you are claiming these benefits you will usually have to
fill in separate claim forms detailing your earnings and
Can I get self employed tax credits? (Working Tax Credit)
If you work full time and your income is low you might get
Working Tax Credit (WTC). For WTC purposes, full
time could mean 16, 24 or 30 hours a week, depending on your
circumstances. You will be classed as working full time
- You are single and responsible for a child and working at least
16 hours a week; or
- You are a couple and responsible for a child and are working at
least 24 hours a week between you, with one working at least 16
hours (exceptions apply, see our Tax Credit
changes sheet for further details); or
- You are disabled and are getting, or were recently getting,
certain disability related benefits and are working at least 16
hours a week; or
- You are 60 or over and are working at least 16 hours a week;
- You are 25 or over and working at least 30 hours a week.
Your self employed earnings will affect how
much you might be entitled to, use our Benefits
Calculator to get a Working Tax
Working Tax Credits are worked out by using
your income from the previous tax year to estimate what you will be
earning in the current tax year. This means that Working Tax
Credits awarded for the current tax year are initially based on
your income for the previous tax year. At the end of the tax year,
when you get your tax credits renewal pack, you are asked to
confirm your income for the tax year that has just ended to see if
you received the right amount of tax credits.
This can cause problems if you are self
employed and your earnings vary from year to year. If your actual
earnings end up being over £5000 more than what
was estimated, you might have been paid too much tax
credits, this is called an overpayment and you will have to pay
If your actual earnings end up
being over £2500 less than what was estimated,
you might not have been paid enough tax credits, this is called an
underpayment and you will receive this as a lump sum.
If you think your earnings this year will be
over £5000 more, or over £2500 less, than your earnings in the
previous tax year, you can inform the Tax
Credit office at any time so that they can adjust your
current payments if needed. You can do this using an estimate of
what you think your earnings will be.
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What benefits can I get if I work part time?
Benefits you can get when working part time include Income Support if you are a person who
qualifies (e.g. a single parent) or Jobseeker's Allowance. You must
be working less than 16 hours per week, and if you have a
partner they must be working no more than 24 hours per week.
You can claim Pension Credit,
Housing Benefit (HB England, Scotland,
Wales) (HB Northern Ireland) and
Council Tax Support whether you work
full time or part time.
If you qualify for Income Support, Jobseeker’s Allowance or
Pension Credit you may be able to claim help with your mortgage or home loan
Earnings, other income and capital affect the amount of benefit
you can get. Any genuine business assets you have (e.g. a
work van, premises, or money in a separate bank account that is
used purely for the business) are ignored.
Use our Benefits Calculator to find
out which benefits you may be entitled to and how much you could
What if I have less work than usual?
If there is a downturn in your business and you have less work
than usual or no work, you might be able to claim benefits for the
first time or the amount of your benefits might increase.
If you are still working full time but your income has dropped,
you might qualify for Working Tax
Credit for the first time or the amount you get might increase.
For Working Tax Credit purposes, working 'full time' could
mean 16, 24 or 30 hours depending on your circumstances. For
further details see Can I get
self employed tax credits?(Working Tax Credits).
The amount of Working Tax Credit you get is worked out using
your income for the last tax year. If the downturn in your business
means that your income this tax year is likely to be more than
£2500 less than it was the year before, the amount of Working Tax
Credit you are paid could increase. You should give the
Tax Credit office an estimate of your earnings this tax
year and they will work out if your Working Tax Credit
payments can be increased.
If you have not stopped working, but have reduced your hours and
are working less than 16 hours a week you might get Jobseeker’s
Allowance. It can be difficult to get Jobseeker’s Allowance if you
have only temporarily reduced your hours. The rules for calculating hours of work could
mean that your average hours are worked out over a year. You might
be classed as working at least 16 hours even though you are
actually working less.
If you claim Jobseeker’s Allowance you will have to look for
full time work. This includes looking for work with other employers
not just self-employed work and not just extra work for your
If you have stopped working in self employment altogether you
will be unemployed and might get Jobseeker’s Allowance.
If you have a mortgage, it might be better for you to work less
than 16 hours and claim Jobseeker’s Allowance as Working Tax Credit
does not include help with mortgage payments. You will need to work
out which benefit you will be better off claiming. You can use our
Benefits Calculator to find out.
The rules are complicated and it can be difficult to know which
benefits to claim. If in doubt, seek advice from a benefits
adviser. You can use our Find an Adviser
tool to find a local one.
Your hours of work will not affect Pension Credit, Housing Benefit (HB England, Scotland, Wales) (HB Northern Ireland) or Council Tax Support.
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What benefits can i claim if I can't work because of illness,
injury or disability?
If you have been working in self employment and are unable to
work because of illness, injury or disability you might be able to
get the following benefits to top up or replace your earnings from
There are other benefits not related to illness, injury or
disability which you may become entitled to for the first time or
get an increase in because of your change in income:
Can I get self employed Sick Pay?
Statutory Sick Pay (SSP) is paid by
an employer when an employee is unable to work due to sickness. If
you are self employed you cannot get Statutory Sick Pay as you are
working for yourself and therefore do not have an employer. If you
are self employed and temporarily unable to work due to illness,
you should check if you qualify for
Employment and Support Allowance.
What if I stop work to have a baby?
If you are going to stop working as a self employed person to
have a baby, you might be able to get the following benefits to top
up or replace your earnings from self employment:
Once you have had your baby you might get:
There are other benefits not related to having a baby which you
may become entitled to for the first time or get an increase in
because of your change in income:
Can I get self employed Maternity Pay?
Statutory Maternity Pay
(SMP) is paid by an
employer when an employee leaves work to have a baby. If you are
self employed you cannot get Statutory Maternity Pay as you are
working for yourself and therefore do not have an employer. If you
are self employed and temporarily unable to work due to having a
baby, you should check if you qualify for
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How will Universal Credit affect me?
Universal Credit currently only
affects single job seekers in certain areas but the Government
plans to roll it out across the UK over the next few
Universal credit will replace the following benefits:
Some of the main issues for self employed people include:
- Gateway Interviews
- Minimum Income Floor
- Monthly Reporting
If you are self-employed and make a claim for Universal Credit
you will have to attend a Gateway Interview. You will need to show
that your self-employment is organised, developed and carried out
regularly in expectation of profit. It must also be your main form
of employment. If you cannot demonstrate these things, you will
need to agree to look for and be available for other work in order
to claim Universal Credit.
Minimum Income Floor
Universal Credit includes a 'minimum income floor' that will be
used for calculating how much you will get if your self employed
earnings are below a certain level. This has not yet been set but
is likely to be equivalent to the earnings of someone working full
time (35 hours per week unless you have other
responsibilities) on the National
Minimum Wage for your age group. If you earn below this level
in any month, the minimum income floor will be used to determine
your payments rather than your actual earnings.
Example: John is a self-employed taxi driver. He has a slow
month and only earns £800. Using the current National Minimum
Wage of £6.50 for over 21-year olds, the minimum income floor for
each month would be £6.50 x 35 (hours) x 52 (weeks) ÷ 12 (months) =
£985.83. This amount would be used to determine his Universal
Credit payment for that month, rather than his actual earnings of
When you first start up a business you will get a 12 month
'start up period' to grow your business. During this period the
minimum income floor will not apply and you will not have to look
for other paid work, allowing you to focus on your business. You
will be limited to one start up period in every five years.
The minimum income floor will not apply for the first 6 months
if you are already self employed and you are moved from existing
benefits to Universal Credit.
If you are self employed you will have to supply monthly
'cash-in and cash-out' figures to the Department for Work and
Pensions (DWP). If
you fail to supply these figures between 7 days before and 14 days
after each month, your Universal Credit payment will be
See our guide to Universal
Credit for more details.
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Schemes and useful links
Enterprise Allowance (link opens in a new window)
Government scheme aimed at helping those in
receipt of certain benefits to start their own business. You could
get a loan to help with start-up costs, a weekly allowance payment
and help and advice from a business mentor.
Clubs at FSB (link opens in a new window)
The Federation of Small Businesses has
information on local Enterprise Clubs. These provide places where
unemployed people who are thinking about setting up their own
business can meet, share ideas and receive expert advice and
support from local business people.
Prices (link opens in a new window)
Free impartial advice to small and medium
sized businesses requiring help and information to reduce their
utility bills for electricity and gas supplies.
self-employment information (link opens in a new window)
Information on becoming self employed and the
schemes that are available to help you, including the New
HM Revenue and Customs (link
opens in a new window)
Has comprehensive information about self
employment, including how to register for self assessment and
starting up in business.
and Customs Starting Your Own Business e-learning course (link
opens in a new window)
Free e-learning course aimed at anyone who is
starting their own business in the UK.
Small Business Advice UK (link
opens in a new window)
Website produced by a media company that
provides information resources and forums for people running or
thinking of setting up a small business.
Frequently asked questions about benefits and self
1. I’m self employed, but struggling
to make the business pay. Is it better for me to claim Jobseeker’s
Allowance or Working Tax Credit?
It can be difficult to decide if you will be better off on
Jobseeker’s Allowance or Working Tax Credit.
You will need to find out how much you will get if you claim
each benefit. Our Benefit Calculator will
help you to work out how much you might get for these benefits.
These are some points you might want to think about when
deciding which benefit is best for you:
- You must not be working or only be working part time to get
Jobseeker’s Allowance. Part-time work is employment you do for less
than 16 hours each week
- If you claim Jobseeker’s Allowance, you must agree to look for
and take other full-time work
- You must work full time to get Working Tax Credit. If you do
not have children living with you and do not have a disability, you
may have to work at least 30 hours each week to qualify
- If your hours of work vary through the year, you might be
treated as being in full-time work even when you are working less
than 16 hours. If the average number of hours over the year is over
16, you will not be able to get Jobseeker’s Allowance
- You will only get help with mortgage
payments if you work part time and get Jobseeker’s
We suggest you seek advice from a local benefits adviser to help
you decide which benefit to claim. You can use our Find an Adviser tool to find a local one.
2. Can a self-employed person get any
help to pay the mortgage on their home?
You will only be able to get help towards the mortgage interest
payments on your home if you are entitled to one of the following
This is because help with this type of housing cost
is included as part of these benefits and cannot be claimed on
You cannot get Income Support, income-based Jobseeker’s
Allowance and income-related Employment and Support Allowance if
you work full time – i.e. work more than 16 hours or more per week,
or your partner works more than 24 hours per week.
If you work part time and your earnings, other income and
capital are low enough and you meet the other rules for these
benefits, you might be able to claim help with mortgage interest
If you or your partner is Pension Credit
age, you might be entitled to Pension Credit. As long as you
meet the age rules and your income is low enough you can
get this if you work full or part time.
To find out whether you can get one of these benefits try the
Turn2us Benefits Calculator.
3. Can a self-employed person claim
Housing Benefit and Council Tax Support?
Yes, you can work in self employment and get Housing Benefit
(HB England, Scotland, Wales) (HB Northern Ireland) and Council Tax Support if your earnings and other
income are low enough.
Housing Benefit can be paid if you rent your home.
If you pay a mortgage or other loan for your home, see question
Council Tax Support is to help you pay your Council Tax bill if
you rent or own your home. There are no work rules for Housing
Benefit and Council Tax Support, so you can get it if you work full
or part time.
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4. What is the New Enterprise
New Enterprise Allowance is a scheme that is intended to help
unemployed people start a business through business mentoring and a weekly
allowance. You can claim it if you have been getting Jobseeker’s Allowance for 26 weeks or more and
live in England, Scotland or Wales.
If you take part in the New Enterprise Allowance scheme, you
will get access to a volunteer business mentor who will provide
guidance and support as you develop your business plan and through
the early months of trading. Once you show that you have a viable
business with potential for growth, you will be able to access
financial support. A weekly allowance paid at £65 a week for the
first 13 weeks and £33 a week for a further 13 weeks will be
There is also the chance to apply for a loan of up to £1,000 to
help with business start-up costs.
See the GOV.UK website for
more information on the New Enterprise Allowance.
5. I am self employed and my wife is
about to have our first child. Can I claim paternity
The main paternity benefit is Statutory
Paternity Pay. This is paid by an employer to an employee who
meets the qualifying conditions, to cover a period of leave for a
birth or an adoption. If you are self employed you cannot get
Statutory Paternity Pay as you are working for yourself and
therefore do not have an employer.
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Updated: 15 April 2015