If you are self-employed and thinking of switching to Universal Credit before you are migrated across there are a few things you should consider first as you might be worse off.
I have always been an advocate for being self-employed since I went self-employed as a single parent about 8 years ago. For me having two children and M.E/CFS it was the best thing ever. I could work my hours around the children so they went to out of school club less and also meant I could work when I could and if it was a bad M.E/CFS day then I didn’t have to drag myself into a job that at the end of the day would make me worse.
Back then on the old system of tax credits and housing benefit, I submitted my figures at the end of the year with my accounts as back up. They took the year figure and averaged it across the whole year. Any peaks or lows were evened out. It worked.
I haven’t been migrated across to the new universal credit system but I have been looking into it a lot. I am hoping with two months till I come off all the benefits that I don’t get moved across.
So what is so bad about the system? I do understand the idea behind putting everything together as all the different sections never talked to each other so will make it all easier but they have made changes as well.
They have introduced a minimum income floor. This is where they assume you earn a certain amount ( minimum income floor). They decide this minimum amount and if you earn below it, like on a bad month or seasonal work then they assume you still earnt the minimum amount they set and pay you accordingly. When you earn above the minimum income floor you have been set they take off the amount you get paid from them. Its roughy 63p per pound.
The minimum income floor is the same as someone working full time ( 35 hours) at minimum wage. So an example. You are 30 and no children and you have a slow month and only earn £800. Your minimum income floor has been set at £1187.50 per month ( Minimum wage for 25+ which is then multiplied by 35 hours per week x 52 ( weeks) divided by 12 ( months)) As you can see $800 is a lot less than £1187.50. On the old system tax credits system, your tax credits were altered to reflect the change. On the new system, it’s not. They work on the £1187.50 figure and you Universal credit payment is the same.
If you are in your first year of being self-employed you get a ‘start-up period’ where minimum income floor isn’t applied. It also doesn’t apply to disabled people or those in the ‘no work-related requirements’ group or the ‘work-focused interview’ or ‘work preparation’ group.
Another change is that you have to submit your figures monthly and if you are more than 2 weeks late with your figures your Universal Credit payment is suspended.
So the months when you need extra help because of seasonal work or a bad month – its tough. Not all self-employment work manages to be earning a full-time wage by the first year.
On the old system if you had a large expense you had to pay out it would be spread across the year with the rest of your figures. On Universal credit, it’s not. So one month you have a big expense, it reduces your income down. If it takes you below your minimum income floor they assume you earnt the minimum income floor amount.
I understand that it’s not up to the benefits system to subsidize a failing business but the current set up isn’t helping new businesses in any way.
So what help is there out there to help you navigate all this? Not a lot. Its new and no one knows what they are doing. One money site recommended asking customers for part payments. If you pay yearly for something see if you can pay monthly instead ( though I thought the idea for paying yearly for most things was it was normally cheaper). Its also advised managing any fluctuating income by trying to ‘smooth’ it out as much as possible. All whilst your trying to run and grow your business.
Other advice is to get a part-time job alongside your self-employment work to be classed as employed. When your main income is from employed and your self employed is classed as a side thing then there is no minimum income floor applied. So when you’re earning each month fluctuate so would your UC payments.
There is light at the end of the tunnel though, there is facebook group, Universal Credit and the Self-Employed, that is so helpful. I really recommend joining and asking any questions you have.
Other things to consider:
When you apply for Universal credit you will have to attend an interview at a Jobcentre. For this interview, you will need –
- Proof you are self-employed with the HMRC so letter with your CTR number will do it.
- Your accounts, no more frantic filling in at the end of the year.
- Your receipts and invoices, HMRC don’t require every invoice and receipt printed out as they are with the modern age and accept most things are online. As long as you can log in and prove it they are good to go. But with Univeral credit, you have to print a few trees out to keep them happy.
- Your business plan. Yep, that thing you probably said you would do one day you will now need. If you are a blogger and want some help with a business plan for blogs, I have written this post Writing a Business Plan for Blog which may help
If you are already on Tax or Child credits you will eventually be migrated across, migration though is being increasingly deferred. If you are migrated you will get transitional protection. This is where if being moved across to Universal Credit mean you would get less money than your current benefits you could receive a top-up payment so that you don’t lose out. If you have a change in circumstances though you would be moved across to Universal Credit and you wouldn’t get any transitional protection.
In some of these following situations, you may be given the choice to move if it is financially better off but not in all cases. Change of Circumstances that trigger a move to Universal Credit are :
- If not already claiming Child Tax Credits but on Income-based Jobseeker’s Allowance, Income Support or Income-related Employment Support Allowance and start work with enough hours to satisfy Working Tax Credit conditions.
- If not already claiming Child Tax Credits but on legacy benefit such as Income-based Jobseeker’s Allowance and Housing Benefit and start work but not enough hours to satisfy Working Tax Credit.
- If already claiming Child Tax Credits, on income based legacy benefits and start work with enough hours to satisfy Working Tax Credit conditions.
- On Working Tax Credit and hours fall below 16
- On Income-related Employment and Support Allowance and hours increase over 16
- On Child Tax Credit and start work to satisfy Working Tax Credit rules
- On Working Tax Credit and increase hours.
- On Working Tax credit and Become sick.
- Lone parent on Income Support and the youngest child turns 5 years old
- Couple on Tax Credits separate
- Lone parent on Income Support and Child Tax Credit forms a couple with a partner working less than 24 hours a week
- Lone parent on Income Support and Child Tax Credit forms a couple with a partner working 24 or more hours a week
- Couple on Income-based Jobseeker’s Allowance with a child under 5 become lone parents
- Single person under pension age on ‘legacy benefits’ becomes a couple with a person of Pension Credit qualifying age
- On Tax Credit, Income Support, Income-related Employment, and Support Allowance, Income-based Jobseeker’s Allowance and take up a new tenancy for the first time
- On Income Support, Income-related Employment and Support Allowance, Income-based Jobseeker’s Allowance or Housing Benefit and household become responsible for a first child.
- On Working Tax Credit only and household becomes responsible for a first child
What I am getting from all the Universal Credit chatter that’s going on is that it’s not encouraging people to get out there and try and make a difference. Don’t follow your dreams. Don’t try to make an income that works for you and your family – unless you’re confident you will be earning a full wage within the first year.
What Can You Do
- First, if you are not already moved across to UC then gen up on what will migrate you across.
- Get your accounts into order so that having to move to monthly reporting isn’t so daunting. Refine any processes you currently do.
- Check out the facebook group and get an idea what your minimum floor income might be.
- If you aren’t earning your minimum floor income ( sorry this does wound patronising and I am sure you would be earning more if you could) see if there are ways you can increase your self-employment earnings.
- Look at your outgoings and see if there is anything that can be paid monthly instead of in one hit.
- Depending on your business type see if any income can be put on a payment scheme to even your monthly incomes.
- If the figures just don’t add up supplement your income with part-time employment ( yes I know easier said than done) and if your part-time employment is your main work you can still continue your self-employment and your dream of world domination and minimum floor income isn’t applied.