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People often make the decision to become self-employed due to the many benefits it can offer. Some people may decide they no longer want to be tied down to nine-to-five employment or be at the mercy of an employer, others no longer want to deal with the daily commute and relish the freedom that being self-employed can bring. However, being self-employed involves long hours and hard work in order to be successful. There is also the worry of income if you become ill or you aren’t able to work.

If employees are unable to work due to being ill, they should receive statutory sick pay from their employer. Someone who is self-employed doesn’t receive statutory sick pay, although they may be able to claim Employment and Support Allowance as an alternative.

Employment and Support Allowance (ESA) was introduced in 2008 and replaced Incapacity Benefit, Severe Disablement Allowance and some Income Support. Claiming Employment and Support Allowance involves undergoing a Work Capability Assessment to decide on your level of fitness for work and the level of ESA you may be entitled to. There are two parts to the Work Capability Assessment which are aimed at deciding whether a person is too ill to work or has a limited ability to work.

Employment and Support Allowance is made up of two types of benefit; income related ESA and contributory ESA. Income related ESA is not taxable, while contributory ESA is a taxable benefit. To qualify for contributory Employment and Support Allowance, a self-employed person must have paid either Class 1 or Class 2 National Insurance Contributions for at least one of the last three years. In addition to this, contributions must have been either credited or paid for the last two years. If contributions haven’t been paid or credited during this time, you may still be entitled to income based ESA if your savings are below £16000 and income is at a low enough level. As the regulations governing entitlement to Employment and Support Allowance are complex, it is often beneficial to seek professional advice.

The amount of Employment and Support Allowance which you may be awarded is dependent on various factors. These factors include your age, whether you live with a partner or spouse, if you are in the assessment period and the type of Employment and Support Allowance you qualify for. Documentation will be required to claim for Employment and Support Allowance. This includes medical evidence of your condition, proof of identity and your National Insurance number.

As a self-employed person, it is important to remember that you may not be entitled to claim certain state benefits unless you have paid satisfactory National Insurance Contributions. To be entitled to Jobseekers Allowance, contributory Employment and Support Allowance, Incapacity Benefit, State Retirement Benefit, Maternity Allowance and Bereavement Benefits, you must have paid Class 1 National Insurance Contributions; which are paid by employees. Class 2 National Insurance Contributions may be paid by anyone who is self-employed and count towards most of the state benefits. However, these contributions do not count towards additional state retirement benefit or contribution-based Jobseekers Allowance. Class 4 National Insurance is paid by some self-employed people depending on the total yearly amount of profits, but doesn’t count towards any state benefit entitlement.

Being self-employed has a large number of benefits but you should certainly plan carefully for the future, especially if you find that you won’t be entitled to additional state retirement pension. It is also essential to prepare for any illness or incapacity as during this time your income may be greatly reduced.

 

 

 

 

About The Author

Kara Copple

An experienced business and finance writer, sometimes moonlighting as a fiction writer and blogger.

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