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Published on 30 October 2017

Self-employed claimants of universal credit – lifting the burdens


In this report, we summarise the main shortcomings of the current universal credit system in respect of the self-employed and propose what we believe to be a workable alternative. Our report does not seek to start from the beginning, instead we set out our own diagnosis of what is wrong with the current system and we suggest changes to the existing system that attempt to preserve the current incentives for entrepreneurial endeavour, bring greater parity between the employed and self-employed and safeguard public finances against abuse.

Without these changes, there is a real risk that those thinking about starting out in self-employment will be dissuaded and those already in self-employment may be forced to give-up before they have been given a chance to grow their businesses.

Our key recommendations include:

  • In each Jobcentre office, a small number of staff should undergo specialist self-employment training to become ‘subject experts’ with access to a central expert team who are supported by HMRC.
  • Self-employed claimants should see a work coach at least once every 12 months to ensure compliance with the gainful self-employment test. There should be consistency to ensure that claimants who are classed as self-employed by HMRC are also self-employed for universal credit purposes. All claimants passing the test should have the opportunity to access business support from a trained Jobcentre adviser.
  • The current one year start-up period should be extended to two years.
  • A general anti-abuse provision should ensure people cannot manipulate their income in order to claim universal credit or more universal credit. This would apply to both employed and self-employed claimants and would remove the need for the complex surplus earnings rules that are due to come into force from April 2018.
  • Self-employed claimants with fluctuating income or profits should be given an option of averaging their income over a period up to one year.
  • All definitions should be fully aligned with the HMRC cash accounting rules and thought should be given to how the system can deal with those who are unable to use the HMRC cash basis for tax purposes.
  • In cases where earnings are averaged, we propose that the system of reporting monthly income and expenses should be changed so that it follows the period of which earnings are averaged.

Our report can be found below

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