A contractor's guide to Jobseeker's Allowance - Can I claim JSA?

It’s been around since 1996 and in various forms before then, but Jobseeker’s allowance (JSA) is still a ‘hot’ topic for contractors, writes James Poyser, co-founder of inniAccounts.

For some it can be seen as a necessity; if you’ve been unable to secure a contract for a long time and your debts are mounting. This unenviable scenario can be common in the first year or two of contracting until you build up relationships with agencies for a strong pipeline of contracts.

For other contractors, it feels unethical to claim due to the tax breaks and higher hourly rates that they benefit from. Whatever position you take, there are clear rules on eligibility and how JSA is administered that every contractor should know in order to understand JSA and if it's right for them when work dries up.

If you are looking at claiming Jobseeker’s allowance as a contractor, be prepared for more resistance than someone that’s out of work from a permanent role, as it’s more difficult to justify a break in contracts to meet the criteria given that dry spells or voluntary breaks between contracts is the norm in contracting; that is, after all, the risk contractors take when they start out as a contractor to reap the rewards of higher earnings while in a current contract.

What is Jobseeker’s Allowance?

Jobseeker’s Allowance is a conditional benefit that is provided by the government to help cover the cost of living while you are unemployed and are actively seeking work. It is classed as a conditional benefit because you are required to provide evidence of actively seeking employment at the point of claim and throughout the period you receive the benefit.

For contractors, having the evidence supporting your job-seeking (contract-seeking) should be simple to accumulate, but you’ll need to provide this evidence at least every two weeks at your local Job Centre to continue receiving the benefit.

There are two types of JSA; Contribution-based Jobseeker’s Allowance and Income-based Job Seeker’s allowance. We explain the differences in the ‘What You’ll Get’ section, below.

What you’ll get

How much you get in JSA depends on how much you have to sustain yourself while looking for work; your income, savings and if you claim as an individual or a couple.

The two types of JSA have different criteria you need to meet in order to claim, but the benefit amount is essentially the same.

Age JSA weekly amount
18 to 24 £57.90
25 or over £73.10
Couples (both aged over 18) £114.85

Jobcentre Plus will confirm which type of JSA you will qualify for but there’s also a tool available on the government’s JSA website that you can use to see how much you are entitled to. You can find the benefits calculator here.

Contribution-based JSA

Contribution-based JSA is paid for up to six months if you’ve paid enough Class 1 National Insurance contributions (NICs) in the two tax years before the benefit year you’re claiming in. A benefit year runs from the first Sunday in January to the Saturday before the first Sunday in January of the next year.

That means you must have (in addition to the general criteria):

  • worked for 26 weeks in one of these years earning at least the lower earnings limit for that tax year
  • paid class 1 contributions or received National Insurance credits in both of those tax years that amount to 50 times the lower earnings limit.

You can still be eligible for contribution-based JSA if your partner (if you have one) is working and if you have savings.

Income-based JSA

If you have a household income of more than £6,000, it will affect how much JSA you get. Income includes money from pensions, earnings or savings. Income-based JSA eligibility is affected by any savings you have and if your partner (if you have one) works.

You’ll get income-based JSA if one of the following applies (in addition to the general criteria):

  • you were paid less than £153 per week on average when you were employed over the last 2 years,
  • you’ve been claiming contribution-based JSA for over 182 days, or
  • you haven’t worked over the last 2 years.

The means-testing for Income-based JSA is thorough and you’ll need to provide evidence of all your earnings, pensions, savings, income from investments or any other source and capital locked in your company too.

AND

  1. Your partner (if you have one) works less than 24 hours per week on average (in addition to the general criteria that you cannot work more than 16 hours per week).
  2. You have less than £16,000 in savings.

A note for contractors about savings:

The majority of contractors save up a ‘cash cushion’ – savings to call on when you’re between contracts or when you want to take a break. It’s commonplace and prudent for when work slows down. Any savings are taken into account as capital and if you have:

  • more than £16,000 total savings you’ll be ineligible for income-based JSA,
  • more than £6,000, this reduces the amount of income-based JSA you’ll receive.

This often sparks the debate around whether it’s ethical for contractors to claim JSA as it is commonplace to save as you earn for a rainy day. When you’re earning high rates and taking a mix of salary and dividends to reduce your tax bill, is it then ethical to claim benefits when you have a dry spell? Only you can decide whether you need to claim JSA between contracts, but if you’ve got the savings to hand and haven’t dipped into them, it’s worth thinking about using your savings first as it’s certainly less hassle than claiming JSA.

Regarding business capital, the value of your business is taken into account when ascertaining your level of savings. Business assets (the total value of your company and its assets) forms part of the means-testing so if you’ve got cash available in your company and the physical assets of the company total more than £16,000 you’ll not be eligible for JSA. Disposing of capital in your limited company by drawing dividends will be taken into account as if you still have access to the money (i.e. haven’t spent it), then this is effectively transferring company capital to personal capital.

General Eligibility for JSA

In addition to the two sets of criteria above for the different types of JSA, there are general rules around eligibility.

1. Inability to work

Are you genuinely unable to work? In order to satisfy this criterion you need to prove that you’re unable to secure a contract or full time employment due to market conditions rather than voluntarily refusing contracts that you are suitable for.

As a contractor you need to provide evidence such as your last 12 months’ earnings showing that it’s difficult to trade under your limited company or your pay slips from your umbrella company. If you have a limited company, you will usually be asked for your business accounts for the 12 months ending in the month that you wish to begin claiming JSA; this can be in the form of profit and loss, annual accounts, trading accounts or balance sheets that your accountant can provide for you.

You need to prove that you are not unemployed due to your own doing; whether it’s being dismissed for breaching your contract in any way, or indeed leaving the contract voluntarily.

2. Other criteria

  • You need to be a UK resident.
  • Working less than 16 hours per week.
  • Not in full-time education (courses must be less than 16 hours per week).
  • Capable of work.
  • Be available to accept any reasonable contract offer immediately.
  • Deem reasonable offers as the nature of the role is within your skill set, the hours and rate are fair.
  • Actively seeking work – you’ll need to prove you are going to interviews, applying for roles and upskilling if appropriate. Keeping a diary of appointments provides good evidence of this.

Which JSA are you eligible for?

The criteria in the section above provide some guidance as to which JSA you may be entitled to, but for more clarity you should use a benefits calculator such as Turn to us or entitledto. Both sites offer impartial advice and are recommended by the Government.  The calculators assess your personal circumstances to assess which JSA you are eligible for and what level of benefit you can expect. 

How you claim for JSA

1. Registering a claim

The most efficient way of starting the claims process is to set up a claim online at www.gov.uk/jobseekers-allowance/how-to-claim. This gives you all the information you need and there is an online form you complete to begin the claims process.

2. The JSA interview

Once you’re set up online, you’ll be asked to attend a JSA interview at your local Job Centre. In the interview, you’ll be asked what you’ve done to date to find work and then you’ll be asked to sign a Claimant Commitment. This is a statement of what you’ll do to actively seek employment. You’ll need to provide:

  • Evidence of your eligibility (as detailed in the previous sections)
  • Your contract-seeking evidence
  • Your business accounts if you are operating through a limited company.

3. Plan and record your activities

In order to retain JSA if you are provided with the benefit after your initial assessment, you’ll need to record your employment-seeking activities. This needs to show a good level of interviews and applications for relevant roles. You’ll also need to provide evidence to support why you don’t accept any roles/contracts that shows they were ‘unreasonable’ offers.

4. Report to your Job Centre regularly

This is commonly known as ‘signing on’ and typically you’ll need to do this every two weeks to retain the JSA benefit. At your appointment you’ll need to provide the evidence (as detailed in point three_ to retain the benefit.

JSA and your tax liabilities

If you claim Job Seeker’s Allowance, you’ll need to ensure that you retain all the payment information in order to record it in your Self-Assessment Tax Return at the end of the year. This is because JSA will form part of the income that is assessed against your personal allowance.

Simply retain all correspondence and track the benefit amount paid. You’ll be asked to declare it in your Self-Assessment Tax Return at the end of the financial year.

Contractors’ FAQs

'I have a limited company, can I still put business expenses through with claiming JSA?'
Legitimate business expenses can still be claimed via your limited company as there will still be running costs associated with keeping your business active. We’d recommend sticking to the absolute necessities while claiming JSA; travelling to job interviews and other personally incurred expenses could have a negative impact on your eligibility while claiming.

'Is there anything I need to claim JSA if I work through an umbrella company?'
You’ll need to ask for a P45 from your umbrella to enable you to claim JSA for the period you are out of contract. If you work through an umbrella, you are an employee of the umbrella and therefore have traceable earnings through PAYE which gives you evidence of NICs and the drop off of earnings that’s resulting in you claiming JSA.

'What is deemed as earnings, capital and savings?'
Any personal savings, stocks, bonds, dividends, available cash in personal or business bank accounts, your business assets; any money held within the business, pensions or any other source of income.

'What is classed as voluntarily ending your employment?'
In terms of JSA eligibility you’ll be classed as voluntarily out of work:

  • if you end the contract
  • if an extension was offered and you turn it down
  • if you refuse another reasonable offer of contract work.

'Where can I find out more about JSA?

You can visit Gov.uk for further information about JSA.

Wednesday 7th October 2015