Self-employment Earnings

Hi,

Not something I come across often and cannot seem to find the answer online - thought it would be a simple question!

Client is reporting self-employed earnings, does she deduct her monthly Tax and NI contributions that she will pay or does UC go off her original figure before Tax and NI deductions?

Thanks

Adam

Page 125 of the 2024/25 edition of CPAG has your answer but yes basically you take NI and Tax off. The process is work out how much money was made in the relevant assessment period (sales, payments for work, etc), deduct expenses (stock, utilities, equipment, etc), then deduct payments for income tax and NI, then payments into a pension and then any offset losses. Et voila you have your self-employed earnings for UC for the assessment period.

But like I say CPAG has a lot more detail which could be worth reviewing before advising!

Regulation 57 of the UC Regs also lays out the relevant process:

https://www.legislation.gov.uk/uksi/2013/376/regulation/57

I may be jumping the gun here but I just wanted to point something out - as your original post said “tax and NI she will pay” I wanted to highlight that s/e claimants can only report the expenses actually paid in that assessment period, not a notional tax and NI that they pay at a later date.

See UC Regs 2013, reg 58 - https://www.legislation.gov.uk/uksi/2013/376/regulation/58. This is explained further in the ADM Chapter H4 - https://assets.publishing.service.gov.uk/media/66155003eb8a1bb45e05e30f/admh4.pdf
‘Conditions for deducting permitted expenses
H4197 When calculating the gross profits in respect of an assessment period, the DM should deduct
from the actual receipts any business expense that
1. was paid out wholly and exclusively for the purposes of the business and
2. was paid out during the assessment period and
3. was reasonably incurred and
4. is an allowable expense
[...]
H4200 The deductions allowed when calculating S/E earnings are those deductions
1. paid in the assessment period and ...’

So for an s/e claimant, their choices re: payment of tax and NI do potentially have an impact on MIF and benefit cap, I think that there a couple of advantages and disadvantages here for your UC between the options of paying tax and NI once a year, or more frequently.

Advantages/disadvantages if you pay HMRC monthly:
- Spread the cost of the payments across the year
- However, if your profit from self-employment is quite low after tax deducted, it could mean you are benefit capped; or after 1 year, affected by the minimum income floor

Advantages/disadvantages if you pay HMRC once a year:
- Paying in one go could be a large amount which reduces s/e profit below the ben cap threshold or makes a loss
- This could create a loss which is carried forward to the next assessment period
- A loss carried forward could mean that your UC is quite low and you are benefit capped; or after 1 year, affected by the minimum income floor.

Thanks. This makes more sense now! She can only deduct if she’s paying Tax and NI monthly and not yearly - I’ll inform the client this and also mention the advantages/disadvantages you mentioned about paying monthly rather than yearly