Trying self-employment

If you’re considering self-employment, you could try it part-time first, possibly just for a few hours a week. If you are on benefits and start paid work, always tell the Department for Work and Pensions (DWP).

Skills you need to be self-employed

These can be things you do yourself or may need help with:

  • maths and literacy
  • record keeping
  • marketing
  • computing
  • inventory management (if you’re managing stock)

Getting ready for self-employment

Support with starting a new business

There are start-up grants available for running your own business. If you’re over 18 and you or your partner claim Universal Credit, Jobseeker’s Allowance or Employment and Support Allowance, you may be eligible for the Government’s New Enterprise Allowance. This can give you up to £1,274 spread over 26 weeks. You will also have a mentor and can apply for a loan to help with starting your business.

There are online resources which can help you prepare for becoming self-employed, including:

Self-employment with PIP and DLA

You can become self-employed and still get Personal Independence Payment (PIP) or Disability Living Allowance (DLA). It does not matter how much money you have because these benefits are meant to meet some of the extra costs of being disabled. But starting self-employment might suggest that you can do things that you could not do when you were assessed. You could have another assessment for PIP. And this could reduce or stop your payments.

Employment and Support Allowance (ESA) and ‘permitted work’

You can carry on claiming ESA if you’re earning less than £131.50 (after tax and National Insurance) and working for under 16 hours a week. When you start working, your work coach will ask you to predict if your work will be within these limits. If it is, you can claim ESA for an agreed period. After this, the DWP will calculate your average weekly earnings to see if you qualify for ESA.

If you plan on working for more than 16 hours a week, you may be eligible to claim Working Tax Credit.

Self-employment and benefits

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Universal Credit - making good use of the 12-month start-up period

The DWP calls the first 12 months of your business the start-up period. It will calculate your benefits on your actual earnings. But after 12 months, Universal Credit assumes you're earning National Minimum Wage at 35 hours a week no matter how much you earn. This is called the ‘minimum income floor’.

When the start-up period ends, if you earn less than this threshold because your work is seasonal or changes from month to month, your Universal Credit will not make up the difference. If your monthly earnings are above this level, your benefits will go down.

The start-up period begins when you start your business, not when you start claiming Universal Credit. Use it to see if self-employment works for you. If your earnings are too low, you may have to consider if you can carry on being self-employed.

Find out if you are eligible for Universal Credit and apply online (GOV.UK). 

Moving into full-time self-employment

If you are on benefits and decide to become self-employed full-time, you will need to let the DWP know.

PIP and DLA are not based on the money you have but the support you need. If you do more work, the DWP may decide to re-assess you. This could lead to a cut in your benefits.

If you work more than 16 hours a week, you will not get ESA.

Your Universal Credit payments will be reduced by 63p for every £1 you earn over your specified ‘work allowance’.

Read more about Universal Credit.

Last reviewed by Scope on: 25/05/2018

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