What reasons might cause a business owner to need unemployment benefits?
Being a small business owner can often involve a fair amount of uncertainty, particularly regarding your cash flow. Running a business that not only draws steady profits, but enough for you to pay yourself a liveable salary and cover all your fixed expenses, can be one of the biggest challenges an entrepreneur faces. It is also very common for businesses to fail, especially within the first few years.
If you have closed your business and are now unemployed or if you are simply struggling to balance the books, you are not alone – and help is available. Below, we look at just a few of the many reasons you might run into financial trouble as a business owner.
- Business closure. Picking yourself back up after making the difficult decision to close your business does not typically happen overnight. It can take time to pursue employment or a new venture, particularly if you have been out of the job market for an extended period or if your confidence has taken a knock. You may also have taken on significant debt while trying to keep your doors open.
- The business is not as profitable as predicated or is experiencing a downturn. Attracting and retaining customers for goods or services can be challenging, particularly when many consumers or companies are being squeezed by factors like the cost-of-living crisis or high inflation. Additionally, the market for your product or service may be particularly sensitive to trends or broader economic conditions, compounding the problem.
- You have invested large sums in starting your business and have no financial safety net. Entrepreneurship can often require substantial risk-taking, particularly for ventures that have high start-up costs. If you have invested heavily in your business, you may be struggling to make sufficient profits, even if your cash flow is on an upward trajectory.
- Unexpected expenses. Depending on the nature of your business, you could encounter large expenses that were not planned for or occurred sooner than expected. This could involve replacing or upgrading expensive equipment or software, needing to hire additional staff to manage your workload or having to troubleshoot unforeseen problems.
- Health problems. Illness, injury, disability or mental-health challenges could significantly impact your ability to run your business or maintain the same level of productivity as when you were in sound health.
- External factors. There is a wide range of external factors that could impact your ability to earn sufficient income from your business. These could include changing laws or government regulations, a new and powerful corporate competitor, an invention that renders your business obsolete (for example, think of the impact Netflix and subsequent streaming services had on the DVD-hiring industry) or a regional or global crisis or conflict, like the Covid-19 pandemic.
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What types of business owner unemployment benefits could you claim?
There are two main benefit types to explore when you find yourself unemployed or struggling to make ends meet. Below, we examine these in closer detail.
1. Universal Credit
Universal Credit (UC) was introduced in 2013 as part of changes to the UK welfare system. According to official guidance on gov.uk, UC brought several previous income-related benefits into a single system. As described in official guidance, UC replaced several previous income-related benefits, including income-related ESA, income-based JSA, Income Support, Child Tax Credit, Working Tax Credit and Housing Benefit. You can review the relevant guidance on gov.uk to understand what support options exist.
How business owners and company directors are treated for benefits purposes depends on individual circumstances. Check current official guidance on gov.uk for how your status is assessed for Universal Credit and related benefits.
Depending on your circumstances, you may be able to claim Universal Credit to supplement a low income or when earnings stop. Current rules for self-employed claimants are outlined on the gov.uk Universal Credit guidance. According to current DWP guidance on gov.uk, eligibility and award amounts are assessed under rules set out in official guidance for Universal Credit and self-employment. Universal Credit has eligibility criteria and reporting processes set out in current official guidance. For self-employed claimants, gov.uk explains how to report income and expenses and what information may be needed each month. According to gov.uk, many claimants manage their Universal Credit account and reporting tasks online. To find out more about eligibility and what you need to do, you can visit the official government page for self-employed benefits claimants.
2. New Style Employment and Support Allowance (ESA)
Although the original ESA benefit was absorbed into Universal Credit back in the previous decade, New Style Employment and Support Allowance is a separate benefit that you may be able to claim. ESA provides support for people whose health conditions or disabilities affect their ability to work, as outlined in current official guidance. Like Universal Credit, this benefit is available to both employed and self-employed persons who meet the criteria. Some people receive New Style ESA alongside Universal Credit. Gov.uk provides information on how benefits are assessed and how different payments are treated. You can find current details on the official pages for Universal Credit and New Style ESA. See the gov.uk pages for ESA and Universal Credit for how payments interact and any relevant limits. Learn more at the dedicated government page for New Style ESA.
What documentation might you need?
Applying for benefits in the United Kingdom is typically an admin-heavy task, and keeping meticulous business and personal records can help to make the process more seamless. Some of the paperwork you may be asked to provide can include:
- Expense reports
- Tax returns
- Details of any assets
- Documents relating to income and expenses (e.g. invoices, receipts and bank statements)
- Information about grants or subsidies you receive
- Business accounts
- Business plans
- Business records such as customer or supplier information
- Marketing materials
- Your doctor’s details
- A ‘fit note’
You can find more information about the exact documents required on the previously linked government pages.
Other benefits business owners may be eligible for
While UC and ESA are the primary benefits unemployed or struggling business owners may be able to apply for, there are other benefits you could also be eligible for as a business owner, regardless of the financial status of your business (provided your income is below the qualifying thresholds).
Examples of benefits listed on gov.uk include childcare schemes, Statutory Sick Pay (where applicable), New Style Jobseeker’s Allowance, maternity-related support and disability-related benefits. Each benefit has its own eligibility rules set out in current guidance.
Related: Paid parental leave in the UK
If you are a business owner suddenly facing unemployment, sinking under financial hardship or tackling an unexpected crisis, there are many resources designed to support you and help you get back on track. Universal Credit, ESA and other government assistance can offer a vital life raft, helping you stay afloat and providing security while you navigate your next moves. We suggest taking time to research your options, gather documents and plan your applications to understand the steps involved and how the process works under current guidance.
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