Start a business while on Universal Credit

These rules apply in England, Scotland and Wales.

Tell Universal Credit when you start trading

Report your self-employment in your Universal Credit account as soon as you start trading. You are then invited to an interview with a work coach. After that, report your business income and expenses every month. Universal Credit counts trading income from the first month, however small. That includes regular selling for profit on sites such as eBay or Vinted. Occasional sales of unwanted personal items count as savings, not income.

Registering with HMRC does not tell Universal Credit about your business. Do both.

Show you are gainfully self-employed

The interview decides whether you are gainfully self-employed. Under regulation 64 of the Universal Credit Regulations 2013, the Department for Work and Pensions (DWP) must find that:

• your trade, profession or vocation is your main employment
• your earnings from it are self-employed earnings
• the work is organised, developed, regular and carried on in expectation of profit

Good evidence includes your business name, address and start date, your Unique Taxpayer Reference if you have one, invoices, receipts, bank statements, tax returns, a website or social media pages and a business plan.

If DWP finds you gainfully self-employed, you do not have to look for other work. If it does not, you may have to look for other work to keep your claim. Your business earnings count either way, but the start-up period and the minimum income floor do not apply.

Your first 12 months

DWP can give you a start-up period if all of these apply:

• it finds you gainfully self-employed
• the minimum income floor has not applied to you before for this kind of work
• you are taking active steps to increase your earnings

During the period, Universal Credit uses your actual monthly profit and you work with a work coach trained in self-employment. Expect appointments about every 3 months where you show evidence of the steps you are taking to grow the business.

DWP can end the period early if you stop being gainfully self-employed or stop taking those steps. You normally get only one start-up period.

After the start-up period

The minimum income floor is an amount that DWP treats as your monthly earnings when your actual earnings are lower. If you earn more than the floor, DWP uses your actual earnings.

The floor applies when you are gainfully self-employed, not in a start-up period, and in the group that must look for work. It does not apply if you are in a group with fewer work-related requirements, for example because of a health condition or caring responsibilities.

The floor can cut your payment sharply. Before the start-up period ends, ask your work coach for your figure and check whether your profit will reach it.

Report your income and expenses each month

Report at the end of each monthly assessment period, in your Universal Credit account. You must report even if you had no income or expenses, and even if Universal Credit does not class you as gainfully self-employed.

Your payment is not made until you report. A late report delays your payment, and inaccurate reporting can lead to sanctions.

Income is what you actually received in the period, whenever you did the work. It covers card, cash, cheque and transfer payments, goods or services taken instead of money (valued at what you would have charged), tips, taxable grants and the proceeds of selling assets you previously claimed as an expense.

If you are VAT registered, choose whether your reports include VAT and stay consistent. Keep receipts, invoices and bank statements, including for cash payments. The same records can serve Universal Credit and HMRC, and DWP can ask to see them.

Expenses must be incurred wholly, exclusively and reasonably for the business in that period. You cannot claim assets that keep their value, client entertaining, charity donations or costs someone else paid. Claim only the business share of mixed costs. These rules differ from HMRC's, so an expense you claim for tax may not count here. You can use flat rates instead of actual costs for vehicles, working from home and business premises you live in.

When your income is uneven

Universal Credit works out your profit for each month as your receipts less allowable expenses. It then takes off the income tax, National Insurance and pension contributions you paid in that month. The more profit you make, the less Universal Credit you get.

A loss in one month is carried forward and deducted from later profits. This helps most in the start-up period, when the floor does not apply.

One large payment can push a month's earnings above the level at which you get no Universal Credit, and your award then ends. The part above your limit is surplus earnings. If you claim again soon afterwards, surplus earnings count as earned income on the new claim.

After the higher limit ends, the standard limit applies unless the government extends it. Surplus earnings do not apply if you have recently been a victim of domestic violence.

Where to get help

Start with your Jobcentre Plus work coach, who can explain how the rules apply to your claim and point you to local business support. For benefits advice from an independent adviser, contact Citizens Advice. For business advice, use the Business Support Service in England, Find Business Support Scotland or Business Wales. You can also call the Universal Credit helpline.