What benefits can I claim as self-employed?

Working out what benefits you can claim while self-employed can be difficult. Earnings can fluctuate when you work for yourself so it can be hard to tell what you’re entitled to, and how much you’ll get.

While self-employed individuals don't have the same traditional benefits as those in regular employment, there are still various ways you can access support. Here, exclusively for ContractorUK, the head of compliance for Dolan Accountancy, Zeeshan Anwar, explains what benefits you can claim in self-employment.

National Insurance Contributions

Self-employed individuals are required to pay National Insurance contributions, which entitle them to certain state benefits. 

Most self-employed people pay Class 2 NICs if their profits are at least £6,725 during the 22/23 and 23/24 tax year. Or £6,725 in the 2023/24 tax year.

Paying Class 2 National Insurance contributions, even if your profits are lower, can still help you build contributory entitlements to benefits and the State Pension.

From April 6th 2024, self-employed people with profits above £12,570 will no longer be required to pay Class 2 NICs, but will continue to receive access to contributory benefits.

State Pension

While self-employed individuals don't benefit from an employer's pension scheme, they can contribute to a private pension plan and qualify for the state pension. 

The state pension is contingent on the number of qualifying years of National Insurance contributions.

You’ll usually need:

  • at least 10 qualifying years on your National Insurance record to get any state pension, and;
  • at least 35 qualifying years to receive a full state pension.

Maternity Allowance

The maternity allowance is a benefit specifically for those who don’t meet the eligibility criteria for statutory maternity pay.

To qualify for either rate of Maternity Allowance, you must first meet the following criteria during the 66 weeks before the baby’s due date:

  • You must have been self-employed for a minimum of 26 weeks.
  • Your earnings must be £30 a week or more, for at least 13 weeks (the weeks don’t have to be consecutive).

Employment and Support Allowance (ESA)

Unlike traditional employees who may receive statutory sick pay, self-employed individuals need to plan for periods of illness. However, you may be entitled to Employment and Support Allowance (ESA) if you're unable to work due to illness or disability. 

You may be eligible to ESA if:

  • you’re a registered employer
  • you’re a sole trader, limited company or partnership with employees
  • your Class 1 National Insurance liabilities were less than £100,000 in the previous tax year

Universal Credit

Universal Credit is a payment made monthly intended to help with living costs for people on low incomes and those who are out of work.

Universal Credit (UC) is a replacement of several benefits - known as legacy benefits:

  • Child Tax Credit.
  • Income Support.
  • Housing Benefit.
  • Working Tax Credit.
  • Income-based Jobseeker's Allowance.
  • Income-related Employment and Support Allowance.

What is gainfully 'self-employed'?

To get this support you will need to be identified as ‘gainfully self-employed.’

Gainful self-employment means that:

  • Self-employment is your main job or your main source of income
  • You get regular work from self-employment
  • Your work is organised (this means you have invoices and receipts) 
  • You’re expected to make a profit

Self-employed people (including company directors, even if they pay themselves through PAYE), must report their earnings at the end of each assessment period, which is normally monthly. You also have to report your expenses each period, along with what the money was spent on, plus tax, National Insurance, and pension contributions.

Your UC payments will depend on your earnings and whether you have children, a disability or a health condition that stops you from working or if you need help paying your rent. If you live with your partner, their income and savings will also be considered. You can use the benefits calculator on the government website to work out how much you’ll get. 

Self-employed minimum income floor 

If you are self-employed, the Department for Work and Pensions (DWP) will calculate your Universal Credit payment each month by comparing your actual earnings with how much you are expected to earn - your minimum income floor.

The minimum income floor is based on what a person on minimum wage would be expected to earn in similar circumstances. 

If you earn more than your minimum income floor, it won't apply, and your Universal Credit payments will be calculated on your actual self-employment earnings. If you earn less, the minimum income floor calculates how much you can receive. In this scenario, you may need to look for more work to increase your income!

Benefits if self-employed: in a nutshell…

While the absence of certain traditional benefits may seem daunting, there are various avenues through which self-employed individuals can access support. By understanding the available benefits, self-employed individuals can make informed decisions that contribute to their financial stability and overall well-being. If in doubt, consult a contractor accountant.

Thursday 11th Jan 2024
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Written by Zeeshan Anwar

Zeeshan Anwar, Head of Compliance at Dolan Accountancy - Having over 12 years of experience in legal and compliance, much of it within the contractor industry, Zeeshan brings valuable knowledge to the business in its efforts to stay compliant with the rules at all times. Whether it be AWR, the Intermediaries legislation or anything else compliance related, Zeeshan is on hand to help us navigate the minefield of legislation and red tape.
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