Making the Move to Self-Employment in the Era of Universal Credit

05 Jan 2018

Written by Jessica Bricknell

For self-employed claimants, well-formed business plans are the keys that grant access to Universal Credit. Work Coaches can’t be expected to assess their viability - instead, a formal referral to an experienced third sector organisation would better help claimants and relieve pressure on Jobcentre Plus.

It’s a dream shared by many people: to be their own boss. The freedom and flexibility that can come with self-employment are popular reasons for setting up shop, and the steady growth in self-employment since the turn of the millennium is a testament to this. The government’s positive noises about the ‘entrepreneurial’ spirit this shows are reflected in the inclusion of support for self-employed workers in Universal Credit. Yet the journey to registering as a new business can feel overwhelming. Fizzing entrepreneurial ideas can quickly go flat as the reality of spreadsheets, sales forecasts and the prospect of self-assessment take over.

To prevent the more daunting elements of self-employment from becoming too off-putting, clear and impartial guidance at an early stage can go a long way in demystifying these obligations and encourage potential entrepreneurs to take the plunge. Our Online Centres have been doing this vital work for the past three years as part of our HMRC project, which you can read more about here.

Still, once they’ve overcome the initial barriers and register as trading with HMRC, many new business owners find themselves in a less predictable financial position than they are used to, and may have to support themselves through other means. Many business owners draw on personal savings, loans from friends and family, or bank lending. However, state support is also available, which is vital especially for those people entering self-employment out of economic hardship or for lack of employment opportunities.

Recent welfare changes mean this support now comes in the form of Universal Credit rather than Working Tax Credits. Self-employed claimants applying for Universal Credit must prove to the Department of Work and Pensions (DWP) that they are ‘gainfully self-employed’. This means that for each person reporting self-employment as their main source of income, the DWP expects to see evidence that illustrates their work is organised, developed, regular and expected to make a profit.

This judgement is currently made by Work Coaches at Jobcentre Plus. Work Coaches are responsible for assisting a wide range of individuals with job-seeking and benefits claims, and they have a large workload. They are a vital link in the welfare system, but a recent report by the House of Commons Work and Pensions Committee has expressed concern that Work Coaches do not have the specialist skills needed to evaluate whether someone has a viable business plan. The Jobcentre Plus system has traditionally had a core focus on assisting claimants into employment, and the lack of personnel with the ability to address business cases is creating a significant weakness in the chain that self-employed claimants experience as they move towards Universal Credit.

The report cautions that an expanded pool of New Enterprise Advisors will be necessary to make up for this shortfall in specialist business support, but also that current plans for the expansion of the externally-provided New Enterprise Allowance scheme will still fail to meet demand, threatening to leave the self-employed in financial hardship. Current provision neglects the reality that the self-employed are a growing segment of the modern UK workforce who are just as likely to need support as those with a different working status. So how can we begin to fill the gap?

It seems likely that the public sector and external providers will need to continue working together to achieve the level of support that the self-employed need. Across the country, community organisations are already providing free business coaching to new or upcoming business owners, ensuring that they have reasonable, considered and viable business plans. Some of the Online Centres delivering our HMRC project are prime examples of this. The lived experience of people who own and manage Online Centres, combined with their fierce dedication to helping every person on an individual basis, place them in a strong position to help develop and review business plans that will meet Gateway requirements for Universal Credit support. With their existing skills, they can strengthen the system which both tests and assists self-employed people in their new endeavours - something that over-stretched Work Coaches cannot so easily achieve.

As my colleague Bea suggests, a formal national referral system between Jobcentre Plus and our network of Online Centres could not only help ensure that all claimants get the specialist business support they need to access Universal Credit, but also guarantee that each self-employed person has the digital skills that will help them complete their self-assessment, market their product effectively, and flourish in an economy in which digital is an ever-growing force. Universal Credit presents an opportunity to influence relationships between the state, working people, and digital: let’s harness it.