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Should I accept tenants who claim benefits?

No one can make that decision for you - but there are some risks to consider, and precautions you can take.
 

Financial Security

Although it is a generalisation, many benefit claiming tenants do not have much in the way of assets or financial reserves.  This can result in delayed rent, or even non payment of rent if some other financial problem arises.  In the longer term, it means that if you need to pursue a claim for damages or missing rent at the end of the tenancy, there is a high chance that you will not be able to enforce the resultant court order.
 
Linked to this, for many tenants, is an irregularity of rent payments. Most tenancy agreements reserve rent monthly in advance.  Housing Benefit (LHA) is paid 4 weekly in arrears (fortnightly in some areas).  This means that the dates rarely match up (monthly rent, 4 weekly LHA) and the amounts for a single payment never match up (annual rent/12, annual LHA/13).  For tenants who rely soley on LHA for their rent payment this will also mean that rent is always paid late.  Example;
 
Rent: £500pm (£6k pa)
 
1st July
£500 rent due
£500 owed
29th July
£461.54 housing benefit received
£38.46 owed
1st August
£500 rent due
£538.46 owed
26th August
£461.54 housing benefit received
£76.92 owed
1st September
£500 rent due
£576.92 owed
23rd September
£461.54 housing benefit received
£115.38 owed
1st October
£500 rent due
£615.38 owed
 
Providing your tenant is entitled to sufficient housing allowance to cover their entire rent (as above) the 13 LHA payments over a 12 month period will equal the 12 rent payments.
 
You may be asked by your tenant to change your tenancy agreement to 13 x 4 weekly rent periods a year in an attempt to match up rent due and benefits paid.  Do not do this - If you needed to evict due to unpaid rent a 4 weekly rent period would prevent you using the mandatory ground 8 in section 8 of the 1988 Housing Act.

You may not be allowed to let

Many providors of landlord insurance will charge an additional amount if you let to benefits claimants.  If you let to benefits claimants whilst paying for non-claimants then your insurance is likely to be invalid.
Your lender may have limitations on what type of tenants you can let to.

Your tenants benefit may be stopped

If the council decide to stop paying housing benefit to your tenant, or their situation changes and they are entitled to less, they may not be able to pay their rent.  Receipt of Housing Benefit is NOT guaranteed.
 

What can I do to protect myself?

The first thing to do is to NOT forget to carry out full referencing and credit checks on your tenants.  This is likely to show if your tenant has previously defaulted on rent, or any orther recorded debt.  If you do these checks yourself, it is worth questioning the 'last but one' landlord.  The current landlord may have a vested interest in giving a good reference to get rid of non-paying tenants.
 
A deposit is essential in all cases.  As your tenant is on benefits, they are unlikely to have a large amount available for a deposit - and yet their lack of assets is the very reason you need as large a deposit as possible.  It is probably cheaper to wait for a tenant with a suitable deposit than run the risk of a tenant running up a large rent debt, and not being able to obtain a penny through the courts.
 
A guarantor is also highly advisble.  The guarantor will be expected to cover any bills that the tenant can not pay.  In view of this, your tenants guarantor should be a creditworthy homeowner, preferably working full time.  The guarantor should be credit checked.  If the guarantor is a homeowner, they are less likely to move - making them easier to find - and they have an asset that you can place a charge on if a court order is made against them.
Guarantees are very difficult to enforce and it is important to ensure that the document is legally binding.  As a rule of thumb, a guarantee that is not witnessed and executed as a deed will not be enforceable in court.  This is one area where DIY or internet forms are best avoided - the cost of having a solicitor draft a suitable deed is minimal compared with the potential consequenses of having a guarantee that can not be enforced.
 
Obtain written permission from the tenant to discuss their Housing Benefit claim with the council.
 
As soon as the tenant misses a rent payment, notify the council of the fact and request that their payments are made directly to yourself in future.  Some councils will do this, however all councils are obliged to do this once the tenant has a minimum of 8 weeks rent unpaid (see section 12)