Martin Lewis: 'Big cut in universal credit for many self-employed coming on 13 November – contact your MP if hit'
MoneySavingExpert.com founder Martin Lewis has warned of the "sinkhole" waiting for many self-employed people in November, when the planned return of the universal credit "minimum income floor" could mean payments are slashed.
In a nutshell, here are the key points:
- The minimum income floor assumes you earn a wage you may not actually get when being assessed for universal credit. Under the rule, if you claim the benefit when you've been self-employed for over a year, eligibility assessments will assume you earn at least the same as someone in paid employment with similar working hours on the minimum wage. We've full info on how the minimum income floor works below.
- The problem comes for people who earn below the floor. Here, when being assessed for the benefit, the Government will assume you earn the higher minimum income floor, and the more you are deemed to be earning, the less universal credit you get.
- If you earn above the floor, there's no issue. As you'll be assessed on your actual income.
- In March, the minimum income floor was suspended due to the pandemic but it's due to return. This was a lifeline for many self-employed people who had initially seen income plummet after Covid-19 hit, as after the change it meant their universal credit payments were calculated on what they were actually earning, rather than an assumed amount which may have been higher than the reality. But the suspension of the minimum income floor is set to end on 13 November unless the Government extends it.
Martin has urged self-employed people to contact their local MP about the issue:
See our Coronavirus Self-Employed & Small Limited Company Help and Coronavirus Universal Credit & Benefits guides for more info on your rights if you're self employed, and details of the support available.
What is the minimum income floor?
In normal times, if you've been "gainfully self-employed" (meaning your main occupation has been self-employment) for more than 12 months, you'll be affected by the minimum income floor rule - though there are a few exceptions.
This means that if you earn below the floor, the Department for Work and Pensions (DWP) won't use your actual earnings to work out what you're entitled to when it calculates your universal credit payments. Instead, it'll calculate your universal credit payments based on the assumption that your income is the same as someone who's employed on the minimum wage for your age group, and is able to work the same number of hours as you are.
Here's how your minimum income floor is worked out:
- First, the DWP will calculate how many hours you could be expected to work per week. This could be up to 35 hours per week, though it could be fewer in some circumstances - for example, if you have caring responsibilities.
- Your expected working hours will be multiplied by the hourly national minimum wage for your age group, and then calculated as a monthly salary. For example, if you're aged 25 or over and in employment, you must be paid a legal minimum of £8.72 per hour - though it'll be less than this if you're younger.
This weekly wage is then multiplied by 52 and divided by 12 to get an equivalent monthly salary.
So, someone who was expected to work a full 35-hour week would be expected to earn:
- £1,322.53 per month if they're aged 25 or over. This is based on a minimum hourly salary of £8.72, which gives a weekly wage of £305.20.
- £1,243.67 per month if they're aged 21-24. This is based on a minimum hourly salary of £8.20, which gives a weekly wage of £287.
- £978.25 per month if they're aged 18-20. This is based on a minimum hourly salary of £6.45, which gives a weekly wage of £225.75.
- £690.08 per month if they're aged under 18. This is based on a minimum hourly salary of £4.55, which gives a weekly wage of £159.25.
- The DWP then deducts an amount for tax and national insurance to work out your minimum income floor. This is deducted at an amount "the Secretary of State deems appropriate", so can differ from case to case.
While the tax and national insurance make it hard to state exact minimum income floors, the monthly wages above can be taken as a good approximation of the level of minimum income floor that will apply to you in your age group (assuming you'd be expected to work full time).
Who does the minimum income floor NOT apply to?
The minimum income floor doesn't apply to everyone. If one of the following situations applies to you, the minimum income floor WON'T be used to calculate your payments and your real earnings will be used instead:
- You've been self-employed for less than 12 months. This is known as the "start up period".
- You applied for universal credit since 23 September 2020 and are in your 12-month grace period. From 23 September, all self-employed people making a new universal credit claim have been given a 12-month "grace period" before the minimum income floor kicks in - even if they've been self-employed for more than a year.
But unfortunately, if you made your universal credit claim before 23 September, this won't apply to you.
- You're not in the "all work-related requirements" group of universal credit claimants. This could be because you care for a child aged under three, for example, or you're in full-time education.
How are my universal credit payments affected if the minimum income floor does apply to me?
Your universal credit payment is based on many factors, including where you live, whether you have children, whether you're in a couple and more. And it's also affected by how much you earn - or, how much you're assumed to earn under the minimum income floor rule. So...
- If your actual income is LESS than your minimum income floor, it's the minimum income floor that's used to calculate your payments instead, meaning you'd get less universal credit than if your actual earnings were used.
- If your actual income is MORE than your minimum income floor, your real earnings will be used to calculate your universal credit payments.
If the Government brings the minimum income floor back next month, some self-employed people will see a drop in their universal credit. Here's an example of what could happen (though as we said above, universal credit entitlements are based on lots of different factors, so see this as an illustration)...
A 40-year-old self-employed musician, who wasn't eligible for help under the Self Employment Income Support Scheme (SEISS), started claiming universal credit in April after coronavirus restrictions disrupted his income.
At the moment he is only able to earn around £200/mth due to reduced demand, and his universal credit payments are based on this amount. As he is a homeowner, lives alone and doesn't have any children, at the moment he gets £283.89 per month in universal credit.
But if the minimum income floor is brought back in, his universal credit payments would be calculated as if he were earning his minimum income floor amount. This could be around £1,200/mth for someone in his situation, though exact amounts will vary - even though his actual income is only a fraction of this. As a result, he would no longer be entitled to claim universal credit, leaving him almost £300 a month WORSE OFF.
I'm self employed and claiming universal credit - what can I do?
Martin has suggested that any self-employed people who could be affected by the upcoming change should write to their MP as soon as possible. You can find contact details for your local MP using the Directory of MPs on the Parliament website.
As part of your email or letter, it's worth telling your MP how the change will affect you as a self-employed person, and asking them to push for the suspension of the minimum income floor to be extended. Make sure you include your own address when you write to your MP so they know you're one of their constituents.
But unfortunately, as well as pushing for the minimum income floor to be suspended for longer, it's important to plan for the worst in case that doesn't happen.
First, make sure you're getting all the support that's available to you. The upcoming third Self Employment Income Support Scheme (SEISS) grant will cover 40% of three months' worth of average monthly profits, up to a total of £3,750 - though sadly, not everyone will be eligible for this help.
You might also be able to apply for a bounce back loan or small business interruption loan - there's full information in our Coronavirus Self-Employed & Small Limited Company Help guide.
You could also ask for a payment holiday for your mortgage, credit card or car finance, or help with your overdraft if you need to, and you may also be able to get help with other bills, including council tax, energy and broadband. There's more information in our Coronavirus Finance & Bills Help guide.
Of course even with this support, many will need to budget carefully this winter. Our Budget Planner guide has help on managing your finances.
What does the Government say?
The Secretary of State for Work and Pensions Therese Coffey said the policy was still "under review" last week when she was asked in the House of Commons whether the suspension of the minimum income floor would end in November as planned. The DWP reiterated that the policy was under review.
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