How do benefits and sick pay work if you are self-employed?

There are many benefits to being your own boss, but you do have to sacrifice some of the financial safety nets that come with being employed.

If you are struggling to pay the bills due to a lack of work or illness there are grants and benefits that you can claim to help.

In this article, we explain:

• What is universal credit and how does it work if I am self-employed?
• Am I entitled to sick pay if I am self-employed?
• How can I apply for employment and support allowance?
• What extra benefits do I get if I have a disability?
• How does child benefit work and what am I entitled to?

Related content: How to cope financially with a career-threatening illness or disability

Universal credit for the self-employed

Universal credit is a single monthly payment you receive if you are on a low income or out of work to help with living costs. It pools six former benefits into one.  

You may be entitled to claim universal credit if you are struggling due to the cost of living crisis or are growing your business.

Am I eligible for universal credit?

The following eligibility criteria applies if you are wanting to claim universal credit: 

• Over 18 and under state pension age
• Total savings (when combined with a partner, if you have one) must be less than £16,000 
• On a low income (employed or self-employed) or out of work
• UK resident

What is the minimum income floor?

How much you get in Universal Credit will depend on how much you earn. Each month the DWP will compare what you earn with what it expects you to earn, known as the ‘minimum income floor’.

This is set using the national minimum wage for your age group and the number of hours you are expected to work, usually 35 but it depends on your circumstances. If you have a disability you might be expected to work fewer hours, for example.

It also includes a notional deduction for tax and National Insurance.

The floor is different for everyone and may not the same as what you actually earn. If your earnings are below your calculated MIF, then the MIF is used to work out how much UC you receive.

If your earnings are above the MIF, then your earnings are used to calculate your MIF.

This means that if you are ‘gainfully’ self employed, with an irregular income or you are trying to build your businesses, you will at least get a minimum income. Gainfully self-employed means that:

• you get regular work from self-employment
• it is your main job or source of income
• your work is organised – meaning that you keep accounts
• you expect to make a profit

If you are unable to prove all these things you might have to look for other work in order to keep receiving universal credit. Check with your work coach.

How much will I get in Universal Credit?

If you are claiming for the first time, the average time you have to wait to receive your first payment is five weeks.

How much you will receive overall in the 2023/24 tax year depends on a number of factors, including:

• Age and relationship status
  • Singles under 25 – standard allowance is £292.11
  • Singles 25 or over – £368.74
  • Couple and both under 25 – £458.51 for you both
  • Couple and one or both are 25 or over – £578.82 for you both
• Children – extra amounts are available depending on the number of children and when they were born
• Health condition or disability
• You need help paying rent

You can also apply for UC if you need time off work – for an operation, for example.

How to apply for universal credit

To apply, you will need:

• Proof of ID
• Information about your income
• Information about your housing situation

If you’re already claiming universal credit and have been affected by the coronavirus, you need to contact your Jobcentre work coach as soon as possible using your online journal.

You can only make a new claim for working tax credit if you get a severe disability premium.

Sick pay for the self-employed

If you do not qualify for statutory sick pay, you might be able to claim new-style employment and support allowance (ESA) or contribution-based ESA.

How much you receive won’t be affected by you or your partner’s savings or income. But you will need to have paid enough national insurance contributions for the past two tax years to gain sufficient national insurance credits. 

If you are claiming ESA you must not also be receiving:

• statutory sick pay
• statutory maternity pay
• jobseeker’s allowance

Like SSP, the government has promised that ESA will be paid from the first day of your sickness or self-isolation and not on the 8th day, as it was previously.

You should receive the first payment within three weeks, which will be up to £84.80 per week (2023/24) depending on age.

How to apply for employment and support allowance

You need to first fill in the claim form (called the ESA1, or NSESAF1). Most people would also have to complete a “capability for work questionnaire”, with questions about your health and abilities (called ESA50), and visit a medical assessment with a healthcare practitioner.

Note that if you currently receive tax credits from HMRC and you apply for universal credit, your tax credits award will end immediately, even if you are not eligible for UC. 

Benefits for self-employed with no work

There are three types of jobseeker’s allowance (JSA), all designed to support you if you are on a low income or out of work.:

• “new style”
• contribution-based
• income-based

As a self-employed person, you will not be eligible for the “new style” or contribution-based JSA but you may be eligible for the means-tested income-based JSA depending on:

• if you’re in full-time education – if you are, you won’t be able to claim
• your age
• how many hours you work each week – less than 16, you could be eligible
• if you have a partner, they will also need to be working less than 24 hours a week on average for you to qualify

If you are a single person over 25, you can expect to receive up to £84.80 every week (2023/24) or £133.30 per week if you’re in a couple. You can apply online.

Disability premiums

You may be entitled to extra money if you have a disability or health condition. Disability premiums are added to a number of your benefit payments, including:

• Income Support
• Income-based jobseeker’s allowance 
• Income-related employment and support allowance 
• Housing benefit

You do not have to apply as any money will be added to your benefit payment automatically. How much you receive depends on the severity of your condition.

The range is from £19.55 for a single person each week to £76.40.

If you are affected by a career-threatening illness or disability read our article about how to manage financially here.

HMRC’s Time to Pay

Self-employed people who have already missed their next tax payment, and find themselves in financial distress, may be eligible for support through HMRC’s Time to Pay service.

Any help will be agreed on a case-by-case basis and will be tailored to individual needs and circumstances. A Time to Pay arrangement allows you to spread the cost of your tax bill by paying in instalments.

Contact the service as soon as you can or call the HMRC helpline for advice on 0800 0159 559. 

If you are wanting to find out more about how to pay taxes as a freelancer, check out our comprehensive article here.

Child benefit

You may be entitled to child benefit if you’re responsible for one or more children under the age of 16 (or 20, depending on their education status).

It’s currently worth £24 a week for the oldest or only child, and £15.90 for each additional child in the 2023/24 tax year. 

However, if you or your partner’s annual income is over £50,000, you will have to pay some or all of the benefit back, through a tax charge.

NOTE: Even if you don’t want to claim, filling out the form will help you get national insurance credits, which count towards your state pension

If you or your partner previously earned over £50,000 and didn’t claim child benefit, but your income has now dropped, consider applying for it now. Details of how to claim can be found on the government website.

Getting further help

This is an incredibly challenging time for many people but there is lots of help available and more being offered all the time.

Speak to your creditors, such as your bank, utility company or your landlord, to see what options they could offer you. You can get free debt advice from Citizens Advice or charities such as StepChange or Turn2Us.