Calculating freelance income for the purposes of Universal Credit

All of the basic info about this is fairly easy to find on the .gov website – this is a good place to start. The key thing to remember is that, when you are self-employed, the government tends to think of you both as …

  • a business that makes profits – your self-employed business has profits, you have expenses, you sometimes have losses because you take personal risks
  • a person who has income based on those profits.

Your personal tax, National Insurance, and benefits entitlement is calculated on the profits that you receive from your working life, so when you’re making a tax return or applying for benefits, they will have a way of identifying your profits – and this is what they monitor for tax/NI/benefits purposes.

It’s actually very similar to the way that earnings are calculated for the purposes of Tax (except, in this case, you also notify the DWP of any taxes or NI you have paid on the income you have received).

Your earnings from self-employment are calculated as the total amount of money your business received, minus any payments you or your business paid out on the permitted expenses (see below), tax, National Insurance, and your pension contributions each month.

Once you’ve done that calculation (income minus those things), you will know your earnings that count as earned income and are used to calculate your Universal Credit payment.

They have a ‘to-do’ system and I’ve not seen it myself, but I think it allows you to list business expenses as well as income – have a look here to see what the allowable business expenses are.

There is some useful info on the government’s MoneyHelper site, and Citizens Advice are very helpful too.

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