Universal Credit: Self-employed

Department for Work and Pensions written question – answered on 24th June 2019.

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Photo of Hywel Williams Hywel Williams Shadow PC Spokesperson (Work and Pensions), Shadow PC Spokesperson (Brexit), Shadow PC Spokesperson (Cabinet Office), Shadow PC Spokesperson (International Trade)

To ask the Secretary of State for Work and Pensions, what criteria her Department uses to categorise universal credit applicants as gainfully self-employed.

Photo of Hywel Williams Hywel Williams Shadow PC Spokesperson (Work and Pensions), Shadow PC Spokesperson (Brexit), Shadow PC Spokesperson (Cabinet Office), Shadow PC Spokesperson (International Trade)

To ask the Secretary of State for Work and Pensions, what criteria her Department use to assess whether a self-employed universal credit applicant is working 35 hours per week or more in paid employment.

Photo of Hywel Williams Hywel Williams Shadow PC Spokesperson (Work and Pensions), Shadow PC Spokesperson (Brexit), Shadow PC Spokesperson (Cabinet Office), Shadow PC Spokesperson (International Trade)

To ask the Secretary of State for Work and Pensions, whether her Department differentiates between annual turnover and salary when assessing the incomes of self-employed applicants of universal credit.

Photo of Alok Sharma Alok Sharma The Minister of State, Department for Work and Pensions

The Department provides tailored support to our claimants who are in self-employment through our work coaches to help them to increase their productivity and earnings. Work coaches can refer low-earning claimants to mentoring support from New Enterprise Allowance providers and sign-post claimants to the other extensive business support which is already funded by the Government.

All claimants with earnings from self-employment, whether gainfully self-employed or not, are required to self-report these each month to ensure that any Universal Credit (UC) payments take into account all household earnings. Monthly reporting allows UC to be adjusted monthly. Claimants are required to report the total of actual payments into and out of their business in each month, minus any Income Tax, National Insurance, permitted business expenses and relievable pension contributions actually paid. This gives a net profit figure, which is treated as the self-employed earnings total in the UC calculation. Any drawings from business to personal accounts or, where a claimant has incorporated their business, payment of salary from their company to their personal account, is disregarded in this calculation to avoid double counting.

When a claim is made to Universal Credit the Department will, on the basis of the information provided by the claimant, assess whether the claimant may reasonably be expected to work. If a claimant is in a group expected to work, the number of hours they may be expected to work is a maximum of 35 but may be lower, for example to take account of caring responsibilities or a health condition.

If a claimant is self-employed and in a group expected to work, the Department then considers a number of factors to establish whether someone is gainfully self-employed. A claimant is considered to be in gainful self-employment where all of the following apply:

  • the claimant is carrying on a trade, profession or vocation as their main employment
  • their earnings from that trade, profession or vocation are self-employed earnings
  • the trade, profession or vocation is organised, developed, regular and carried out in expectation of profit

If all of the above are satisfied, then the claimant is considered gainfully self-employed. A Minimum Income Floor (MIF) is calculated by multiplying the number of hours the gainfully self-employed claimant is expected to work by the relevant National Minimum Wage for their age, minus notional deductions for Income Tax and National Insurance Contributions. Gainfully self-employed claimants with a MIF applied to their claim are free from requirements to seek other work and are free to undertake those activities that they consider will maximise their profit including decisions about when and how to work most effectively.

As we announced in the Autumn Budget 2018, we are extending the 12-month start-up period where claimants are exempt from the Minimum Income Floor to all gainfully self-employed claimants who are new to Universal Credit. This start-up period will provide time for self-employed claimants to establish and grow their business, or to adjust to Universal Credit.

On average earnings from self-employment are lower than from employment and the self-employed make up a significant proportion of those in in-work poverty. The Government believes the MIF, by incentivising claimants to earn more from self-employment, or alternatively enter employment, offers the most effective way of tackling in-work poverty for the self-employed.

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