Little-known Universal Credit rule means millions on benefits can keep payments while starting a business

MILLIONS of people on Universal Credit looking to set up a business can keep their benefit payments thanks to a little known rule.

You are still eligible for benefit payments if you start a business under the “start up period” rule.

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You may be able to get Universal Credit while starting a business[/caption]

This means your Universal Credit payment is calculated based on your actual earnings.

This is different to how payments are usually calculated, which is based on something called the “minimum income floor”.

This is a threshold used to calculate the maximum help that some self-employed people get through Universal Credit.

We explain how the rules differ and what it means for you if you’re planning on being your own boss.

How does the “start up period” rule work?

The minimum income floor is the amount the government expects self-employed people to earn.

It is used to work out your benefit payments.

The minimum income floor is set at the national minimum wage level at the number of hours you would be expected to work.

This weekly rate will then be multiplied by 52 (the number of weeks in a year) and divided by 12 to give you a monthly figure.

Everyone’s minimum income floor is different, and it depends on the number of hours you agreed to work with your work coach.

But for instance, if a 25 year old agreed to work 20 hours each week, at a national minimum wage of £12.21, their minimum income floor would be £1058.2 a month.

But if you are setting up a business, the rules are different.

If your business is less than 12 months old you qualify for something called the start up period, which changes the way your benefits are calculated.

This means the “minimum income floor” doesn’t apply to you for the first 12 months.

Instead, your payments are based on your actual earnings.

How can I claim Universal Credit and a start up period?

You may be eligible for Universal Credit if you meet the following criteria:

• live in the UK
• be aged 18 or over (there are some exceptions if you’re 16 to 17)
• be under State Pension age
• have £16,000 or less in money, savings and investments
• you are on a low income, out of work or cannot work

But if you are trying to set up a business and you’re self employed, and would like to claim Universal Credit, you need to show that self-employment is your main work.

This includes showing 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, or accounts
• you expect to make a profit

If you can show all these things, you’ll be considered “gainfully self-employed”.

This means you do not have to look for other work and can concentrate on growing your business.

If you cannot prove all these things, you may have to look for other work if you want to claim Universal Credit.

In order to get Universal Credit while starting a business, you will need to attend an interview with a work coach.

At this interview, it will be decided if you’re “gainfully self-employed” and if you qualify for the “start-up period”.

You will qualify for a start-up period if:

• you have not previously been gainfully self-employed while claiming Universal Credit, and
• you are taking active steps to increase your self-employed earnings

During your start-up period, you will not have to look for, or be available for, other work.

During this period you can also get support from a work coach who is trained to work with self-employed people.

If you claim Universal Credit while starting a business, you will also need to report your income and expenses.

At the end of each monthly assessment period, you’ll need to report:

• how much you earned from self-employment, even if it’s nothing
• any money you paid into a pension
• payments into and out of your business

More help while starting a business

There are other ways to get help when starting your business.

The government-backed Start Up Loan can help with £500 to £25,000 to start or grow your business.

You’ll also get free support and guidance to help write your business plan, and successful applicants get up to 12 months of free mentoring.

To apply for the loan, you must:

• live in the UK
• be 18 or over
• have (or plan to start) a UK-based business that’s been fully trading for less than 36 months.

Unlike a business loan, this is an unsecured personal loan. You’ll need to pass a credit check.

These loans charge a fixed interest rate of 6% per year.

You can repay the loan over a period of 1 to 5 years. There’s no application fee and no early repayment fee.

The government also has a free online tool that lets you search for grants and loans available to small businesses.

You could also consider crowdfunding.

And if you are aged 18 to 30 and have a business idea, the King’s Trust’s free Enterprise programme can help with expert-led workshops, one-to-one support, and opportunities to apply for funding.