AS2022 (3): Low-paid self-employed miss out

Some self-employed universal credit claimants may not see the full value of the Government's rise in benefits because the artificial minimum income floor that is applied to some low paid self-employed claimants in universal credit is directly linked to the minimum wage which will also rise from 1 April 2023.

Self-employed universal credit claimants, who are found by DWP to be 'gainfully self-employed', may be subject to the minimum income floor (MIF). If the MIF applies, the claimant's actual earnings from self-employment are ignored and instead their universal credit is calculated based on the MIF.

The MIF is usually calculated as 35 hours a week x relevant minimum wage rate, less a deduction for notional tax and national insurance. One impact of the MIF is that if a self-employed claimant earns a low amount in a particular assessment period, for example because they had less work or because they had a large business expense to pay, their universal credit will not increase to reflect their fall in actual income.

Victoria Todd, Head of pressure group, the Low Incomes Tax Reform Group (LITRG), said: "Self-employed workers are not entitled to the minimum wage so the announcement that the national living wage will rise by over 9.7% from 1 April 2023 may well have passed them by. However, the national minimum wage is used to set the level of the minimum income floor for some self-employed universal credit claimants.

"If the minimum income floor applies to a self-employed worker, that will therefore also increase from April 2023 as a direct result of the announced increase in the minimum wage. The MIF is effectively substituted for the person's actual self-employed earnings and as income rises, the amount of universal credit awarded usually reduces.

"As a result, some self-employed universal credit claimants may not see the full value of the April 2023 10.1 per cent increase in universal credit. This may well be detrimental for those self-employed workers who cannot simply increase their income in response to a minimum wage increase and is yet another complicated interaction between various systems that may catch people unaware."