June 2025 update: the latest version of the relevant guidance is now version 8.
The relevant section reads "As a Community Interest Company (CIC) requires the assets and profits of the company to be used to primarily benefit the community rather than the individual, claimants trading through a CIC cannot rightly be considered as in a position similar to a sole trader and should not be treated as selfemployed for Universal Credit purposes."
Until January 2024, if you were claiming Universal Credit and told your work coach that you were the director of a Community Interest Company, or CIC, you would have been told that your work for the CIC was going to be treated as self-employment, despite the fact that tax and employment law require that company directors who work for their company should be employed. This was because of the application of Universal Credit Regulations, Regulation 77, which requires that directors of small limited companies who have significant control of the company should be treated as "analogous to a sole trader". Version 3 of the guidance for decision makers did not mention CICs specifically; Version 4 and 5 had the insertion "including directors of community interest companies" without further comment.
As a result, a Universal Credit claimant who was one of three CIC directors (a common model for small start-up social enterprises) would be required to report one third of all the income received by the CIC each month, and one third of the expenses, as though it were self-employed income and expenses. If the claimant was employed through payroll, 100% of their salary would be an expense, and they would also be treated as employed.
Why it mattered
The consequences of this were potentially catastrophic. Receiving a grant, for instance £20,000 from the National Lottery Awards for All fund, would mean a director-claimant was viewed as having "earned" £6,666.67 (one third of the grant) during the month it was received. In almost all cases, this would entirely wipe out any Universal Credit payment for the month. Surplus earnings rules would mean that subsequent months' payments would also be wiped out, potentially leading to six months of zero payment and an automatic claim closure. All due to a restricted grant that was intended to fund a two-year project that may not even have started yet, and certainly can't be legally accessed by the director-claimant to pay their bills.
Why we got involved
This matters to Talk About Money CIC because it's an example of the type of structural financial unfairness we exist to combat - it means that people with strong financial support, or alternative sources of income, are able to set up and run social enterprises while people who lack those financial resources and are entitled to claim means-tested benefits have to choose between putting their household's finances in jeopardy or stepping down from running a CIC.
But it also mattered because one of our three directors is a director-claimant, and the catastrophic consequences of receiving a much-needed National Lottery Awards for All grant weren't just a hypothetical risk but a genuine and pressing one.
It took several months, multiple phone calls, letters, consultations with lawyers, several Freedom of Information Act requests, and intervention by a local MP, but we succeeded: Version 6 of the guidance on Companies and Directors – Gainful Self-Employment now states that at the Gateway Interview (where the work coach determines whether or not a Universal Credit claimant is self-employed, and if so, whether the self employment is gainful), a claimant should only be found self-employed for Universal Credit purposes if they are "not restricted on how they use any profits, such as through a Community Interest Company (CIC) asset lock which ensures income generated by its activities is primarily used for the benefit of the company, rather than the individual".
In other words, directors of CICs should never be considered self-employed for the purposes of Universal Credit. The role of CIC director is, in most cases, unremunerated, and any work carried out for the CIC should be as an employee, paid through PAYE and reported to Universal Credit via the Real Time Information system.
Paying yourself as a CIC director
Many people will advise you that it is okay to pay yourself for work done on behalf of your CIC by invoicing the CIC as a freelancer, or even setting up another limited company to work through. This is dubious advice in the best of cases, as it contradicts HMRC guidance and places you at risk of fines, but it is especially poor advice for CIC directors who are claiming Universal Credit. There are many significant advantages of being classed as employed rather than self-employed when you claim benefits; invoicing your own CIC as a freelancer places you back into the self-employed category and means you lose out on those benefits.
Even if your CIC wouldn't otherwise need to run a formal payroll, it is simpler and less likely to cause confusion if you do pay yourself through payroll. This will mean that your earnings are reported to the DWP in exactly the same way as if you were being employed by a different business that you have no control over. The small increase in cost to the business (which, again, is a cost that you are already legally obligated to pay, despite the fact that many small businesses get away with evading it) is minimal in comparison to the potential consequences if your Universal Credit claim is suspended because your employment situation has been misunderstood.
In Summary
- Being the director of a CIC does not mean you are self-employed for Universal Credit purposes
- If your work coach tells you otherwise, they should consult the latest guidance as it has changed
- Always pay yourself through payroll as an employee for the work you do for your CIC