Universal Credit and the self employed

Self-employed workers claiming Universal Credit could receive less than other employees despite earning the same amount, according to Citizens Advice research.

If a self-employed worker and an employed worker were both earning £9,750 a year, the self-employed worker would receive £630 less.

This is due to a law that means a self-employed worker who earns less than the national minimum wage one month would not have the difference made up by their Universal Credit payment.

However, if their monthly earning went over the minimum wage level, their benefit payment would be reduced accordingly.

A Department for Work and Pensions spokesman said: "The minimum income floor encourages people who aren't earning enough through self-employment to grow their business or take on more hours in other employment.

Minimum Income Floor

When you are self-employed and you claim Universal Credit, you are treated as if you are earning a certain amount. This amount is called the 'minimum income floor'. If the minimum income floor applies to you and you earn below this level in any month, you are treated as earning the minimum income floor. If you are earning more than the minimum income floor, your actual earnings are taken into account instead.

The minimum income floor is the equivalent of someone working full time (35 hours per week unless you have other responsibilities) on the National Minimum Wage for your age group.

Example: John is a self-employed taxi driver aged 35. He has a slow month and only earns £800. His minimum income floor is £7.83 (National Minimum Wage for 25+ year olds) x 35 (hours per week) x 52 (weeks) ÷ 12 (months) = £1,187.55 per month. This amount would be used to determine his Universal Credit payment for that month, rather than his actual earnings of £800.

If you start a business whilst you are claiming Universal Credit, the minimum income floor will not apply to you for the first 12 months. This 'start up period' gives you a chance to grow your business. In the start up period, your Universal Credit payment is calculated based on your actual earnings even if they are lower than your minimum income floor.