Question on claiming UC whilst working on a low income.

NedS

tifo said:

NedS said:

The figure of needing to earn £355/month is based off the old entitlement to JobSeekers Allowance (JSA) and to make things equivalent on UC. If you were claiming JSA and earning £355 you'd no longer have an entitlement to JSA (your claim would close) and therefore you would no longer be expected to look for more work, but you would still have been able to claim help with housing (housing benefit) and with children (Child Tax Credits) as someone on low income. They have simply replicated that on UC to ensure people in the same situation are treated similarly whether claiming legacy benefits or UC.

 But an employed person can earn more than £355 and get more UC than a self employed person earning the same.
 
 I suppose that's because UC then becomes the equivalent of WTC so the person doesn't lose out, but self employed do as there is no such rule in WTC

I think the answer to this parliamentary question addresses the discrepancy perfectly:

https://www.parallelparliament.co.uk/question/138303/universal-credit-self-employed

The Minimum Income Floor is designed to address flaws in the previous system which allowed self-employed claimants to receive full State support while persistently declaring very low earnings and to prevent people from under-declaring earnings. This situation is unsustainable and unfair on the taxpayer.

If people continually exploit a loophole (potentially committing fraud in the process), then one shouldn't be surprised when the loophole is closed. Ultimately it is not the purpose of State benefits (the tax payer) to support failing private businesses.

calcotti

NedS said:

If people continually exploit a loophole (potentially committing fraud in the process), then one shouldn't be surprised when the loophole is closed. Ultimately it is not the purpose of State benefits (the tax payer) to support failing private businesses.

I think the intention is clear (and understandable). It is unfortunate however that the self employed with fluctuating earnings can, over time, end up with less UC than an employed person with the same overall earnings.

NedS

calcotti said:

NedS said:

If people continually exploit a loophole (potentially committing fraud in the process), then one shouldn't be surprised when the loophole is closed. Ultimately it is not the purpose of State benefits (the tax payer) to support failing private businesses.

I think the intention is clear (and understandable). It is unfortunate however that the self employed with fluctuating earnings can, over time, end up with less UC than an employed person with the same overall earnings.

That is no different for an employed person with fluctuating earnings (e.g, zero hours contract), but is a function of the move to monthly earnings on UC versus annual earnings on Tax Credits.

calcotti

NedS said:

That is no different for an employed person with fluctuating earnings (e.g, zero hours contract), but is a function of the move to monthly earnings on UC versus annual earnings on Tax Credits.

It isn’t the same. When an employed person gets low earnings they get more UC, when a self employed claimant has a low month they are hit by the MIF which limits the UC. Over time therefore a self employed person ends up with less UC even if the total annual earnings are the same.

Alice_Holt

tifo said:

NedS said:

The figure of needing to earn £355/month is based off the old entitlement to JobSeekers Allowance (JSA) and to make things equivalent on UC. If you were claiming JSA and earning £355 you'd no longer have an entitlement to JSA (your claim would close) and therefore you would no longer be expected to look for more work, but you would still have been able to claim help with housing (housing benefit) and with children (Child Tax Credits) as someone on low income. They have simply replicated that on UC to ensure people in the same situation are treated similarly whether claiming legacy benefits or UC.

  
 
 I suppose that's because UC then becomes the equivalent of WTC so the person doesn't lose out, but self employed do as there is no such rule in WTC

         But from April 2015 Tax Credits introduced a similar ruling when evaluating self employment earnings:

    "For claims from 6 April 2015 onwards, claimants must be either employed or self-employed. For tax credit purposes, HMRC define self-employed as meaning the self-employed activity is done on a commercial basis with a view to realising a profit and it must be organised and regular.

HMRC have applied this test to new claims from 6 April 2015 and they also check existing claims to see if those claimants also meet the new test. HMRC wrote out to existing claimants about the new test from July/August 2015 before they started to apply these rules to existing claims.

As a general rule, HMRC accept that a self-employed activity meets the test where income from that activity is at least the equivalent of the national minimum wage. HMRC have clarified that claims are checked against the test if the claimant's previous year income from self-employment is less than the number of working hours declared by the claimant x standard rate of national minimum wage."

https://revenuebenefits.org.uk/tax-credits/guidance/how-do-tax-credits-work/self-employed/

The intention being, as with UC, to deter claimants whose self-employment is not viable being subsidised by the tax payer.   

calcotti

Alice_Holt said:.But from April 2015 Tax Credits introduced a similar ruling when evaluating self employment earnings:...   

The difference being that HMRC frequently seemed not to apply the rule!

Spoonie_Turtle

Am I right in thinking there was officially the gainful self-employment test for Tax Credits, but it just wasn't strictly enforced?  So if S/E people worked the right number of hours, realistically they could claim regardless of whether the business was actually viable or not.

Edit: wow, it seems I missed half a page of comments because Alice_Holt's comment addressed exactly that *facepalm*

NedS

calcotti said:

NedS said:

That is no different for an employed person with fluctuating earnings (e.g, zero hours contract), but is a function of the move to monthly earnings on UC versus annual earnings on Tax Credits.

It isn’t the same. When an employed person gets low earnings they get more UC, when a self employed claimant has a low month they are hit by the MIF which limits the UC. Over time therefore a self employed person ends up with less UC even if the total annual earnings are the same.

Quite. My brain must be in Sunday mode

calcotti

NedS said:Quite. My brain must be in Sunday mode  

Hopefully that means you’ve had a relaxing day!

calcotti

Spoonie_Turtle said:

Am I right in thinking there was officially the gainful self-employment test for Tax Credits, but it just wasn't strictly enforced?  

That is my perception. Moreover because Tax Credits are calculated annually fluctuating monthly earnings didn’t create a problem in the same way that the UC MIF does.