Becoming self-employed

New Enterprise Allowance - What is it?

Table of contents

    The New Enterprise Allowance (NEA) is a scheme designed to help the long-term unemployed back to work by helping them set up their own business. If you’ve got a feasible business plan, you might be entitled to a weekly allowance worth up to £1,274 over 26 weeks.

    How the New Enterprise Allowance works

    According to the Government’s guidelines, to be eligible you need to be over 18 and receiving one of the following benefits:

    • Jobseeker’s Allowance (or your partner does)
    • Employment and Support Allowance (or your partner does)
    • Income Support, if you’re a lone parent, or you’re sick or disabled

    You may also be eligible if you get Universal Credit, including if you’re already self-employed. Self-employed Universal Credit claimants may be able to get help with developing a business plan, get mentoring support for up to 52 weeks, and apply for a start-up loan (if the business is less than two years old).

    If you’re starting a new business, a designated business mentor will talk you through the process and explain how running a small business works.

    This is all subject to change though, as the New Enterprise Allowance is about to be replaced with a new version of the programme.

    What will the updated New Enterprise Allowance include?

    This second phase of the NEA will contain many of the same elements of the original programme, delivered by private providers. It will include an additional pre-assessment stage called ‘Link Up, Start Up’, where applicants can learn more about the implications and responsibilities of being self-employed, and the income difficulties they might face.

    The refreshed NEA ties in more closely with Universal Credit, with providers incentivised to help clients increase their income to the level of what’s called the Minimum Income Floor.

    The Minimum Income Floor is based on the number of hours (up to 35) you’re expected to work each week, multiplied by the minimum wage. If you earn less than this, you’re restricted from having the difference made up by a larger Universal Credit payment.

    These changes will also mean opening up NEA support to existing self-employed claimants on Universal Credit, specifically those struggling to reach the MIF. This could result in the Department for Work and Pensions being inundated with requests for help, seeing approximately 40% of the full-time self-employed earn less than the Minimum Income Floor.

    What elements of the NEA need changing?

    A concern is expressed within the Entrepreneurial Audit – a joint project from the RSA and Crunch – is that NEA claimants are currently paid £65 a week for the first three months, but this is then cut to £33 a week for the following three months. The report refers to this as an “abrupt cliff edge” and suggests a better approach would be to taper this reduction over a longer period of time. Most businesses take more than three months to get going, if the NEA is to help more businesses succeed then it needs to be amended.

    Another big issue highlighted was that the NEA payment averaged over the course of the full six months is worth a quarter less than what people receive under Job Seeker’s Allowance. As claimants can not claim both at once, and there appears to be no justification for such a discrepancy, the report suggests equalising the two payment amounts.