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

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.

How do I calculate my earnings - self employment?

Your earnings from self employment will count as income when working out what benefits might be available to you.

For Universal Credit, you will need to report your earnings every month. You will have to report how much you earned in that assessment period to calculate your earnings:

  • First work out how much you actually received in that assessment period

  • Then deduct any permitted expenses (costs you had to pay to run your business and that were only paid to allow you to run your business)

  • Then deduct money you have paid for taxes and national insurance. You can only deduct money you have actually paid during that assessment period. Some self-employed people choose to pay tax in regular installments in advance

  • Then deduct any money you have paid towards a private pension

  • Then deduct any losses from previous assessment periods. 

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. You can find detailed information about how to do this on the HM Revenue and Customs (HMRC) website.

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 from your own home, there is a special rule for working out your earnings for tax credits, Housing Benefit, Income Support and Jobseeker's Allowance. One third of your gross earnings (your earnings before any deductions) 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.

Reviewed: April 2022

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