Self-employment and minimum income floor
Universal Credit - Minimum Income Floor
The Minimum Income Floor (MIF) allows the government to assume a certain level of self-employed profit, even if you don't earn that amount.
Unless you are in a grace period, if you are self-employed, are in the 'all work related requirements' group and your earned income is lower than your MIF amount, your MIF will be used instead of your actual earnings when calculating your Universal Credit (UC) award.
The 12-month grace period
Since 23 September 2020 all new UC claimants receive a 12-month grace period before the MIF rules apply. For people who are already self-employed when they start their UC claim, the 12 months runs from their UC start date. For people who become self-employed after starting their UC claim, the 12 months runs from the date they start being self-employed.
Before this date the 12-month grace period was only for newly self-employed people, so it was not available to new UC claimants who had been self-employed for over a year.
For either group the grace period can’t be used twice for the current trade, profession or vocation on a current or previous award of UC in the last five years.
NEW The MIF was paused during the Covid-19 pandemic
Between 6 April 2020 and 31 July 2021 the MIF was not applied to Universal Credit awards.
From 1 August 2021 it is being reintroduced, but this will only take place after you've had a conversation with your work coach and they've found you to be gainfully self-employed.
The assessment about gainful self-employment considers things like whether you get regular work from self-employment and whether self-employment is your main job or your main source of income.
The government has said, to ensure everyone has time to prepare, claimants will be given a month’s notice that the MIF is being applied and no one will see a decrease in their UC award before September. As an additional safety net for those whose businesses continue to be heavily impacted by Covid-19 restrictions, work coaches will also be able to provide a suspension of the MIF for up to two months at a time on a case by case basis – for a maximum of three suspensions, adding up to six months in total.
The date the MIF due to start again varies depending on when you started your Universal Credit claim, as follows:
- After 1 August 2021 – the 12-month grace period applies from the date you claim UC.
- During pandemic (14 March 2020 – 31 July 2021) – the 12-month grace period applies from 1 August 2021.
- Before the pandemic (13 March 2020):
- if you were in your 12-month start-up grace period the time remaining is carried over (eg, if you had used 8 months your MIF will be reintroduced after 4 months).
- if you were not in a 12-month start-up grace period the MIF will be reintroduced from the assessment period immediately after the assessment period your work coach spoke to you about the MIF reinstatement. You will however be exempt from having to search for, or take up any other employment, allowing you to concentrate on your business. The DWP has confirmed that people in this group will begin to be impacted by the reintroduction of the MIF from mid-September 2021.
How much is the MIF?
If you are single, your MIF is your individual earnings threshold, which in most cases will be the appropriate national minimum/living wage rate for your age multiplied by 35 hours – though the hours may be reduced in some circumstances due to caring responsibilities or health issues.
Examples based on 35 hours for 2021/22:
- Age 23+ is 35 x £8.91 = £311.85 a week (£1,351.35 a month)
- Age 21-22 is 35 x £8.36 = £292.60 a week (£1,267.93 a month)
- Age 18-20 is 35 x £6.56 = £229.60 a week (£994.93 a month)
- Age under 18 is 35 x £4.62 = £161.70 a week (£700.70 a month)
- Apprentice is 35 x £4.30 = £150.50 a week (£652.17 a month)
A notional amount to reflect income tax and national insurance is also deducted.
If you are in a couple and your earnings are below your MIF a different process takes place to work out what earnings amount to use in your Universal Credit calculation.
Both members of the couple will have their MIF worked out separately using the method described above and then added together to provide a combined MIF amount, even if one member of the couple is not self-employed.
Your individual earnings from self-employment and/or employment will be added together to provide a combined earnings figure for you as a couple, to compare against your combined MIF. This is to check that between you as a couple, you are earning at least the combined MIF.
If your combined earnings are less than your combined MIF, then the self-employed earnings will be replaced in the calculation with the individual MIF for that member of the couple (or the amount needed to bring the combined earnings in line with the combined MIF, if this is less).
This is a complicated part of the Universal Credit calculation and you should seek advice if you are earning below your Minimum Income Floor.
Council Tax Support - Minimum Income Floor
Some Local Authorities have also introduced a Minimum Income Floor for self-employed claimants as part of their Council Tax Support/Reduction schemes. The way this works tends to be similar to how described for Universal Credit above but some things such as the number of hours used to calculate your earnings threshold and the length of the grace period can vary from scheme to scheme so it is always best to check with your own Local Authority to see how the MIF might affect your entitlement if you are self-employed and on a low income.