Universal Credit: how claims account for the self-employed | Personal Finance | Finance
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Universal credit replaced a number of previously existing benefits in an effort to make claiming benefits easier. The benefits replaced were income support, child tax credit, housing benefit, income-based jobseeker’s allowance (JSA), income-related employment and support allowance (ESA) and working tax credit. There is wide scope within the eligibility for Universal Credit. People may be able to receive it if they are on a low income, out of work, over 18 with some exceptions for those aged 16 to 17, under state pension age, have less than £16,000 in savings (for couples) and/or if you live in the UK.
It is based on what an employed person on minimum wage would expect in similar circumstances. The exact calculation for the minimum income floor is done by the Department for Work & Pensions (DWP). They multiply the national minimum wage with the specific number of hours the individual works. The number of hours will be agreed upon beforehand in a written document called a “claimant commitment”.
So, for example, a claimant has declared and is expected to work 30 hours a week. If they’re over 25 the minimum wage applicable is currently £8.21 an hour.
The initial calculation is: £8.21 times 30 hours which equals £246.30 per week. This will be £12,807.60 per year.
The amount will then be converted into a monthly figure, in this case, it will be £1,067.30. Finally, the DWP will take off an amount for National Insurance and the result will be the final monthly income floor figure.
If what the self-employed person earns is higher than this minimum wage calculation, than the Universal Credit offered is based on the individual’s actual earnings.
However, if what is actually earned is less than this level, than the minimum income floor is used to work out what payments will be given to the claimant.
Generally, the more that is earned over the minimum income floor, results in less being paid in Universal Credit. The basic rule is that for every extra £1 earned, Universal Credit payments will go down by 63p.
If self-employed earnings are low the government details that further work may need to be sought to top up income, indicating that the Universal Credit payment may not be substantial.
The situation could be made more complex when including ongoing performance figures. Both losses and surpluses can be carried over to the following month. If a loss is carried over, it will be deducted from the next month’s earnings.
The self-employed will need to ensure they keep on top of any changes in their circumstances. Changes will need to be reported to the government and these can include details for businesses that are closing, if a business is being set up in a different sector, if a permanent job is being taken up or work cannot be found. Depending on the change, reassessment may be needed.
For those newly self-employed there are different rules. If an individual is within 12 months of starting a business they could be eligible for a start-up period of up to a year. During this start-up period, months earnings are used to work out the Universal Credit payments, meaning the minimum income floor will not apply. A work coach will also be provided, who is specifically trained to work with and support the self-employed.
Quarterly appointments will need to be held with the work coach, where evidence will be required to show that the individual is still gainfully self-employed and taking real steps to grow the business.
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