A recent report published by the government,“Universal Credit: supporting self employment,” considered the impact of the Monthly Income Floor (MIF) earnings requirement. To be eligible for Universal Credit (UC) claimants must earn the at least the MIF.
The MIF is aimed at the self-employed, who have been in business for more than twelve months. It assumes a level of earnings based on what an employed person might receive in similar circumstances.
It is calculated through multiplying National Minimum Wage rates with the number of hours a self-employed person is expected to look for and be available for work. It also includes a notional deduction for tax and National Insurance.
Where a self-employed person’s earnings are below the MIF it will be used to calculate an entitlement award instead of the actual self-employed earnings.
Recent growth in self-employment means that there are now five million self-employed persons in the UK. This equates to 15% of the workforce.
The Department for Work and Pensions rightly wants to support, through Universal Credit (UC), low-paid people to work and to progress in work. In doing this for the self-employed, it must balance its support of entrepreneurship with its protection of the public purse. The DWP’s key means of doing this is UC’s MIF: an assumed level of monthly income for calculating benefit payments.
The Department hopes the MIF will incentivise business owners to increase their earnings and develop their business, while ensuring that the Government does not subsidise unsustainable low-paid self-employment indefinitely. Given the growing importance of self-employment, getting this balance right will be a key determinant of the success of UC.
This does, however, assume self-employed individuals aiming to make a UC claim are earning a regular income at least equal to the National Minimum Wage. The report identifies that the problem with MIF is that it has been designed with monthly paid employed individuals in mind rather than the self-employed – many of whom may have more volatile earnings.
It also considers that the current system, which allows self-employed individuals to be exempt from meeting the MIF for the first 12 months of self-employment, is insufficient. The report urges the Government to extend the exemption period.
If you are just starting self-employment or you are on a low income, talk to us. We can help you to understand the UC maze.