How will Universal Credit affect the Self-Employed?

Indycube Community - Westminster Work and Pensions Committee (January 2018)

Indycube Community have been asked to give evidence to the Work and Pensions Committee tomorrow morning (Wednesday 17th January) regarding Universal Credit (UC). Mark Hooper will be speaking as Founder of a cooperative representing freelancers and the self-employed, and has gathered evidence from Indycube Community members and individuals who have found themselves affected by the recent rollout of Universal Credit in the UK.

A key issue with Universal Credit for the self-employed is the Minimum Income Floor (MIF), which is very inflexible and does not take into account the often fluctuating income of indy workers. The issue is that self-employed workers receive the same Universal Credit entitlement for each month they are under the Minimum Income Floor, regardless of by how much, and fluctuations between months are unaccounted for. Because of this, a self-employed worker with a variable monthly income could receive less over the course of a year than someone with the same income who earns a fixed monthly sum.

MIF is calculated by combining expected working hours with minimum wage, less income tax and National Insurance Contributions. For new businesses, there is a 12 month grace period in which workers are able to build up to this level of income, but many start-ups feel that 1 year is simply not long enough to reach trading potential. After 12 months, UC entitlement is calculated on the assumption that businesses are profitable enough for the self employed worker to earn at the MIF each and every month, even when they’re not.

Steph Olsen, founder of Aroma Indulgence, is concerned that when her 12 month grace period expires in July 2018, she will have ‘no choice but to de-register the business and go back to looking for work,’ a struggle for her due to ‘health barriers.’ In October the RSA called for an extension of the Minimum Income Floor period to 2 years, but unfortunately this was not addressed in the Chancellor's Autumn Budget.

Sarah Jones of Smart Desk is sceptical of the monthly calculations. While Tax Credits are calculated on the previous year’s net profit and split into equal monthly payments, allowing the recipient to budget accordingly, UC is much more sporadic in nature. Sarah told us, “I'm not convinced that a more responsive system where payments are adjusted given monthly income would actually be helpful. I feel the lack of certainty about how much you will receive would be destabilising and add worry and doubt on top of your already fluctuating self-employed income.” Income instability is already a problem for the self-employed and the lack of flexibility in UC is highly unlikely to improve matters.

Although Universal Credit has been implemented as a means to simplify the system, the execution has been less than straightforward, particularly for start-ups, who are expected to attend an interview every three months to prove that they are still ‘gainfully self-employed’ and taking steps to increase their earnings.

The evidence session will be broadcast live on BBC Parliament tomorrow morning. Tweet Mark with your thoughts.

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