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How the minimum income floor works if you're self-employed

This advice applies to England

Your Universal Credit payment will change each month depending on your earnings and other circumstances. How much you get also depends on whether you're in a couple or have children.

You won't be able to find out exactly how much Universal Credit you could get each month. If you want to get a rough idea, you can use the entitledto benefits calculator.

When the DWP work out your Universal Credit payment each month, they'll compare your real earnings with how much they expect you to earn each month - this expected amount is called your 'minimum income floor'. The DWP take this into account when working out your Universal Credit payment.

The minimum income floor doesn't apply to everyone. If it doesn't apply to you, your payments will be based on what you actually earn through self-employment.

Check if the minimum income floor applies

The minimum income floor will only apply to you if you're in the 'all-work-related requirements group' - this means you're expected to work or look for work. Your work coach should tell you what group you're in.

The minimum income floor won't apply if:

  • you look after a child under 3
  • you're pregnant or have given birth in the last 15 weeks
  • you're caring for a severely disabled person
  • you've been assessed as having limited capability for work or limited capability for work-related activity
  • you're in full-time education

You also won't have the minimum income floor applied if you've been self-employed for less than 12 months or you're temporarily too sick to work.

If you've been self-employed for less than 12 months

The DWP call the first 12 months of your self-employment a 'start-up period'.
When the start-up period has finished, the DWP will start using the minimum income floor to work out your payments.

You'll need to try to build your business up as much as possible during the start-up period - GOV.UK has advice on how to build a new business.

If you're temporarily too sick to work

The minimum income floor shouldn't be applied while you're too sick to work.
If you're too sick to work and it affects your ability to make a profit, call the DWP and ask them to treat you as not being in 'gainful self employment' while you're ill.

Gainful self-employment is 'organised, developed, regular work where you expect to make a profit'. If you're not in gainful self-employment, the DWP can't apply the minimum income floor to your earnings and your Universal Credit payment should be higher.

If you're off sick for 7 days or more, you'll have to get a medical certificate, sometimes called a 'fit note', from your doctor. Send it to your work coach at your local Jobcentre. Take a photo or copy of your medical certificate before you send it.

Universal Credit helpline
Telephone: 0800 328 5644
Textphone: 0800 328 1344
Telephone (Welsh language): 0800 012 1888
Monday to Friday, 8am to 6pm

Calls to these numbers are free. It’s best to call from the phone number you gave the DWP when you set up your Universal Credit account. You'll have a shorter wait and be put through to the same person who handled previous calls you've made.

Example

Greta has a business selling clothes at the market. The minimum income floor applies to her earnings.

She has to take time off for an operation. She doesn't close her business down because she plans to return to work.

While Greta is in hospital her profits go down because she isn't selling her stock.

She sends fit notes to the DWP and asks them not to treat her as being in gainful self-employment while she can't work. The DWP agree she can't work and don't apply the minimum income floor for that period.

When she goes back to work, she lets the DWP know and they start applying the minimum income floor to her earnings again.

If the minimum income floor doesn't apply to you, your payments will be based on what you actually earn through self-employment.

If the DWP apply the minimum income floor when they shouldn't, you might be able to challenge their decision.

How the minimum income floor affects your payment

The minimum income floor is how much the DWP expect you to earn each month - it's not the same as what you actually earn. The amount is different for each person, because not everyone is expected to work the same number of hours.

How the minimum income floor is worked out

The DWP multiply the national minimum wage with the number of hours you agreed to work when you first met your work coach. This is in your written agreement called a 'claimant commitment'.

Example

Lorna is 31 and works as a self-employed cleaner. She's a single parent with a 7 year old child.

As part of her claimant commitment she's expected to work 25 hours a week. The minimum wage for her age group is £8.21an hour.

Her minimum income floor is:

£8.21 x 25 hours = £205.25 per week

£205.25 x 52 weeks = £10,673 per year

This is converted to a monthly figure by dividing £10,673 by 12.

The DWP take off an amount for National Insurance - £27.26. They don't take off anything for tax because her income is below the tax threshold.

Her monthly minimum income floor is £889.42 - £27.26 = £862.16.

If you earn more than your minimum income floor

Your payment will be worked out according to your actual earnings. You'll be better off than if you'd earned less than the minimum income floor.

The more you earn over the minimum income floor, the less your Universal Credit payment will be. The basic rule is for every extra £1 you earn, your Universal Credit will go down by 63p.

If you earn less than your minimum income floor

Your payment will be worked out as if you'd earned the minimum income floor amount.

This means that although your earnings are low, your Universal Credit payment won't be topped up. You might have to find other work to increase your income.

Example

Nadia is 22, single and works as a self-employed painter. She's expected to work 35 hours a week. This is used to calculate Nadia's expected monthly income, using the minimum wage for her age group of £7.70:

35 hours x £7.70 = £269.50 per week

£269.50 x 52 weeks = £14,014 per year

£14,014 ÷ 12 months = £1167.83 per month

The DWP take off £92.95 for tax and National Insurance.

This would make Nadia's expected monthly income, after deductions, £1,074.88 per month - this is her minimum income floor.

During January, Nadia earns £200.

Her Universal Credit payment is worked out using her minimum income floor of £1,074.88 per month.

This means her Universal Credit payment is lower than what she needs to cover her costs.

If your client's made a loss

Your client should record their income as nil but the DWP will still apply the minimum income floor if it applies to them.

When your client reports their monthly earnings, the DWP should automatically carry forward their loss into the next assessment period. This means your client's Universal Credit payments might be more for the following month.

Example

John is a taxi driver.

In January he earns £500 from his business and pays £1000 for new equipment.

His self-employed earnings are nil and he has a loss of £500.

The loss of £500 can be deducted from his profits in February, during the next assessment period.

In February, he earns £1000 from his business. The DWP deduct the loss of £500 from the previous assessment period. This reduces his income for February to £500.

If you're in a couple

Each month, the DWP will look at both your earnings when deciding whether to apply the minimum income floor to work out your payment.

The DWP will apply the minimum income floor if both these apply:

  • the earnings of the self-employed are lower than their individual minimum income floor
  • the combined earnings of the couple are lower than the couple's minimum income floor

Once the minimum income floor is applied, there are extra steps the DWP take to work out your 'earnings' and payment. This is a complicated calculation.

Example - how the DWP work out a couple's payment

Guy is a self-employed window cleaner. He's married to Laura who works full-time for an employer. They're both expected to work 35 hours a week.

Guy's individual minimum income floor is £1091.07 per month.

The couple's joint minimum income floor is £1091.07 x 2 = £2182.14 a month.

Guy only has earnings of £500 a month.

Laura's earnings are £1200 a month.

Guy and Laura's individual earnings and joint earnings are below the minimum income floor so the minimum income floor is applied when working out their payments.

The DWP calculates Guy's earnings as follows:

Guy has real earnings of £500, but the DWP treat his earnings as £1091.07 because that's his minimum income floor.

These are added to Laura's earnings of £1200:

£1200 + £1091.07 = £2291.07.

Their joint earnings are £108.93 above the couple's minimum income floor of £2182.14.

The DWP take away £108.93 from Guy's individual minimum income floor.

£1091.07 - £108.93 = £982.14.

Guy will be treated as having earnings of £982.14 for this assessment period.

If your client's in a couple

For more about how the minimum income floor is applied to couples see CPAG 2018/2019 edition, Chapter 7 'Universal Credit income' Page 114.

Reporting your monthly earnings

You'll have to report your earnings every month to the DWP.

Find out what earnings to report and how to do it.

Managing your income and expenses from month to month

If your earnings change each month, your Universal Credit payment will also change. This can make it hard to budget. You should try to make your income and spending similar each month.

You can ask HMRC if you can pay income tax and National Insurance monthly instead of annually - this is called a 'budget payment plan'.

Find out more ways to keep your self-employed income and expenses more consistent on the Money Advice Service website.

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