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Self employment and benefits - How do I calculate my earnings?

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.

How do I calculate my 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 profits.

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 (England, Scotland, Wales), Housing Benefit (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 period.

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 contributions.

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 deductions.

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