Self-employment and the minimum income floor

Universal Credit assesses self-employment in monthly slices. At the end of each assessment period you report the income your business actually received and the allowable expenses it actually paid: cash in and cash out, not invoiced or accrued. That figure is your profit for the month, and the taper is applied to it. It bears no relation to your tax return, which measures a whole year and allows things Universal Credit does not, so the two will not match and are not supposed to.

If DWP decides you are in gainful self-employment, they can assume you earn a minimum amount regardless of what you actually made. That floor is the minimum wage for your age multiplied by 35 hours a week (£12.71 an hour if you are 21 or over) less a notional deduction for tax and National Insurance. If your profit is below the floor, your award is worked out as if you had earned the floor. If it is above, your actual profit is used. The floor never increases an award; it only reduces one.

New businesses get a 12-month start-up period during which the floor does not apply and awards are based on real profit. It runs from when you start being gainfully self-employed, and you get it once every five years for a given trade, so restarting the same business does not restart the clock. The end of that year is the single most common shock in self-employed Universal Credit: nothing about the business changes, but the award can fall sharply overnight because the assumed figure kicks in.

If your earnings in a month exceed the point where your award drops to nil by more than £2,500, the excess is treated as surplus earnings and carried into the following month, where it reduces that award too. It is designed to stop people timing large payments to game the system, but it catches ordinary businesses with irregular income: a single big invoice, a seasonal peak. Spreading invoicing across months, where the business genuinely allows it, is a legitimate response.

The floor does not apply if you are not in gainful self-employment at all, meaning the work is not organised, developed and regular, or not your main employment. It does not apply during the start-up period, and it is lifted while you are ill, caring, or in certain other circumstances. It should also not apply if you have been placed in the no work-related requirements group. If it has been applied and you think one of these fits, ask for a mandatory reconsideration and get advice from a welfare rights service before the amounts build up.