Self-employment: Gainful self-employment

A claimant is in gainful self-employment if the Secretary of State has determined that -

they are carrying on their activity as their main employment
the earnings from it are self-employed earnings
it is organised, developed, regular and carried on in expectation of profit.

Whether a claimant is in gainful self-employment for UC purposes is important because it may have an impact on the claimant’s work-related requirements and it also determines whether:

minimum income floor applies to the claimant’s S/E earnings
the claimant is eligible for a start-up period (see below).

The claimant will be asked to provide evidence of their self-employed activities usually at a ‘Gateway’ interview shortly after the UC claim has been made.

DWP guidance suggests that the following factors are relevant to the gainful self-employment test:

Whether the activity is undertaken for financial gain
The number of hours spent each week on the work
Any business plan or steps taken to increase income from the activity
How HMRC regard the activity
How much work is in the pipeline
Whether the claimant is actively marketing or advertising for work

There is some recognition in the guidance for new businesses and decision makers are told to consider:

the business plan or proposal and whether there is a reasonable prospect of the business being an on-going concern in terms of an expectation of profit
what steps a claimant is already taking to progress their new business activity or towards carrying out work in relation to the business and whether there is work in the pipeline, for example, a list of suppliers, diary of appointments etc
what work has already been done and what income has been received
whether the claimant is making it known to potential customers that they are available to take on work, for example, marketing and advertising
whether the claimant has registered as S/E with HMRC (although this will not verify S/E activity for UC purposes)

For businesses receiving little or no income, the guidance states the following should be considered to determine if the claimant is still gainfully self-employed (if they are then the MIF will apply if they are outside of their start-up period and in the all work requirements group):

if there is a reasonable prospect of work in the near future
if the business is a going concern and regarded as such by
- the person
- the business’s bankers or
- any creditors or
- others
if the person is genuinely available for and actively seeking alternative work
if the person hopes or intends to restart work in the business when economic conditions improve
if the person is undertaking any activities in connection with the self-employment
if there is work in the pipeline
if the person is regarded as S/E by HMRC
if the person claims to be anxious for work in the trade, profession or vocation. Is the person making it known that the business can take on work? For example by advertising or by visiting potential customers
if the interruption in question is part of the normal pattern of the person’s work

The guidance directs decision makers to consider periods of sickness that are minor and temporary as part of the normal pattern of self-employment which means the person will still be classed as gainfully self-employed.

ADM Chapter H4020 provides more information about how DWP will determine whether someone is in gainful self-employment. Appendix 2 has further examples of the gainful self-employed test.

Start-up period

When DWP determine that a claimant is in gainful self-employment, the claimant can be eligible for a start-up period. During a start-up period the minimum income floor policy does not apply.

The rules around when a start-up period can apply have changed over time, initially only applying to UC claimants who were starting-up in self-employment. But from September 2020, the rules say that a start-up period applies from the beginning of an assessment period in which the Secretary of State determines that a claimant is in gainful self-employment where both of the following conditions apply:

the minimum income floor has not previously applied to the claimant in relation to the trade, profession or vocation that is currently the claimant’s main employment (whether that be in the the current UC award or a previous UC award), and
the claimant is taking active steps to increase their earnings from the activity up to the level of their individual threshold.

Crucially, a start-up period cannot apply if the claimant has already had a start-up period in relation to the current award or a previous award. The only exception to this is if the previous start-up period:

Began more than 5 years before the beginning of the current assessment period in which gainful self-employment is determined; And
Applied in relation to a different trade, profession or vocation which the claimant ceased to carry on.

This means that if a claimant ceases their trade, and then starts the same trade again say 7 years later, they will not be entitled to a start-up period.

The Secretary of State can end a start-up period if the person is no longer in gainful self-employment or if they are no longer taking steps to increase their earnings from the activity to the level of their individual threshold.

In essence, whether the person is making a new claim for UC or they are an existing claimant, as long as they have not had a start-up period in the previous 5 years and they have never had a start-up period for the same trade, the 12 month start-up period starts from the beginning of the assessment period that DWP determine they are in gainful self-employment. But DWP can terminate a start-up period if, they determine the person is no longer in gainful self-employment or they are not taking active steps to increase their earning from the activity to the level of their individual threshold.

Last reviewed/updated 27 June 2024

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