More than 2.5 million people to be moved onto universal credit from today, leaving 900,000 worse off

calcotti

Twixty3 said:.

As far as I am aware the minimum income floor is equivalent to 35 hrs on the minimum wage not the living wage.  

It’s the National Minimum Wage but confusingly the government renamed the National Minimum Wage as the National Living Wage for those over 23 (as an Orwellian exercise to hide the fact that it isn’t).

Not to be confused with the Real Living Wage campaigned for by the Living Wage Foundation.

Spoonie_Turtle

Twixty3 said:

As far as I am aware the minimum income floor is equivalent to 35 hrs on the minimum wage not the living wage.  

The hours used to calculate a claimant's MIF are based on the age of their youngest child.  The poster said primary aged kids, so for as long as their youngest is 12 or under it will be 25hrs not 35.

ElwoodBlues

Twixty3 said:

ElwoodBlues said:

I've just started looking into how UC works, after hearing that they're planning to resume migrating TC claimants soon. It looks absolutely horrendous for my circumstances, and from what I can gather I'll end up going from a regular weekly tax credits payment to a variable and sporadic monthly UC payment at best. At worst, I'll get nothing at all, and won't be eligible for transitional protection.

I'm a single parent of 3 primary age kids. I run my own small business (Limited Company), which is profitable and pays me the living wage (on a part time/25hr a week basis, which is what I understand UC Minimum Income Floor would be based on). It's a genuine small business, which I took over 20 years ago. Has always generated a reasonable profit, although in recent years becoming a single parent I've scaled it back to focus on family.

My company's income is highly variable month to month - it's highly seasonal and I have some customers that are invoiced on an annual basis. The business absorbs the variations and I pay myself a fixed wage on PAYE basis. But UC tears all that up (along with accrual accounting) and works on the basis that all the business profit in a month is my personal income. On a 'good' month the business income will reduce (or completely cancel) my UC payment for the following month, when it's quite likely that the business income will be lower again.

I'll have to prepare monthly accounts for them on a cash accounting basis, so totally different to my existing accounting. Expect that alone will generate a day or two of extra admin each month, which will not only be an unpaid overhead, but prevent me from doing any income generating work.

I can see how it might work for your common self employed. 

And to top it all off, I've been scrimping and saving for the last few years to fund an extension on the house, so my kids aren't squashed into 'box' bedrooms. I'm not quite there with enough to pay for the building work yet, but it's enough to disqualify me from UC. Yes, I'm lucky enough to have some savings, but as a family we've made massive sacrifices to accumulate that - kids have never been on a proper holiday, have sat out of residential school trips, I drive a 20 year old car, buy everything 2nd hand or from the tip, we never eat out or have takeaways etc. At this point, with UC looming, I'd be better off taking it down the casino and putting it all on red. Except of course UC would class that as deprivation of income. 

I feel shafted from all sides with this.

Two things that may be of use to you are :-

• To provide for a 12-month period when the Minimum Income Floor will not apply to self-employed claimants who are managed migrated

And if you end up with an indicative nil award 

The transitional element – initial amount and adjustment where other elements increase

55.—(1) The initial amount of the transitional element is—

(a)if the indicative UC amount is greater than nil, the amount by which the total legacy amount exceeds the indicative UC amount; or

(b)if the indicative UC amount is nil, the total legacy amount plus any amount by which the income which fell to be deducted in accordance with section 8(3) of the Act (that is the prescribed percentage of earned and unearned income above the work allowance) exceeded the maximum amount.

(2) The amount of the transitional element to be included in the calculation of an award is—

(a)for the first assessment period, the initial amount;

(b)for the second assessment period, the initial amount reduced by the sum of any relevant increases in that assessment period;

(c)for the third and each subsequent assessment period, the amount that was included for the previous assessment period reduced by the sum of any relevant increases (as in sub-paragraph (b)).

(3) If the amount of the transitional element is reduced to nil in any assessment period, a transitional element is not to apply in the calculation of the award for any subsequent assessment period.

(4) A “relevant increase” is an increase in any of the amounts that are included in the maximum amount under sections 9 to 12 of the Act (including any of those amounts that is included for the first time)(25), apart from the childcare costs element.

As far as I am aware the minimum income floor is equivalent to 35 hrs on the minimum wage not the living wage.  

I think I follow that. But I don't think it covers my particular concern. My company is business to business trade (industrial IT products and service). I have customer contracts that I invoice (and they pay) annually up front. And I also sell 'big ticket' hardware. Even on the small scale that I operate on, if I have a bumper month I could raise 20k of sales invoices - that doesn't happen often, maybe once a year. But we also have quiet season where some months of the year the business has literally zero sales. (however, I'm still busy as a large part of my work involves after sales support, training, warranty, along with an element of R&D).

So if I have to put together monthly cash trading figures for UC then an exceptional month might show 10k+ of profit. Or I could have multiple months scattered throughout the year with 5k+ of profit. I wish it was like that every month, but it's not sustainable, so other months will be less, losses even. Over the year I generally end up with about 15k of take home profit (PAYE and pension contributions).

Each time I have one of those bumper months, my understanding of UC is that a high figure like that will be in excess of the income threshold to qualify for UC (which I think is about £3400/month according to online benefit calculators) will cause my UC claim to terminate. And then I'll have to make a new claim for UC (not clear if I can start a new claim immediately, or if I have to wait for the next month to elapse, as I won't have any idea until the end of the next month what that ones figures will look like. And then I'll have to wait 5 more weeks from the start of the new claim period to receive my next UC claim.

But the bigger implication of going through that cycle is that (by my understanding) as soon as I have one bumper month that terminates my UC claim, then my entitlement to any transitional protection will be lost at that point. So then they'll take my savings into consideration and I'll be ineligible for UC. Also transitional protection in respect of personal savings only lasts for 12 months beyond migration from legacy benefits, so even if I do somehow manage to massage my monthly profit for that long, and I haven't spent (or squandered!) it by then, I'll lose the transitional protection anyway, and again become ineligible. If I do spend the savings in that time, they could also accuse me of depriving myself of savings and treat it as notional asset anyway.

https://www.gov.uk/universal-credit/how-your-earnings-affect-your-payments

https://www.entitledto.co.uk/help/Deprivation-of-savings-and-other-capital-Universal-Credit

Spoonie_Turtle said:

Twixty3 said:

As far as I am aware the minimum income floor is equivalent to 35 hrs on the minimum wage not the living wage.  

The hours used to calculate a claimant's MIF are based on the age of their youngest child.  The poster said primary aged kids, so for as long as their youngest is 12 or under it will be 25hrs not 35.

Yes, I'm working on the assumption that my MIF will be 25 hrs @ min wage.

Spoonie_Turtle

To allay one of your fears, currently UC claims are being held open until after 6 consecutive months of nil entitlement.  [I don't recall whether there's any indication of that changing in the near future - it was how the original UC pilot worked, was stopped when it was fully rolled out, but reintroduced again with the pandemic.]

calcotti

ElwoodBlues said:..So if I have to put together monthly cash trading figures for UC then an exceptional month might show 10k+ of profit. Or I could have multiple months scattered throughout the year with 5k+ of profit. I wish it was like that every month, but it's not sustainable, so other months will be less, losses even. Over the year I generally end up with about 15k of take home profit (PAYE and pension contributions).

.....
But the bigger implication of going through that cycle is that (by my understanding) as soon as I have one bumper month that terminates my UC claim, then my entitlement to any transitional protection will be lost at that point. So then they'll take my savings into consideration and I'll be ineligible for UC. Also transitional protection in respect of personal savings only lasts for 12 months beyond migration from legacy benefits, so even if I do somehow manage to massage my monthly profit for that long, and I haven't spent (or squandered!) it by then, I'll lose the transitional protection anyway, and again become ineligible. If I do spend the savings in that time, they could also accuse me of depriving myself of savings and treat it as notional asset anyway.

All of your concerns appear legitimate to me. 
Fundamentally you will not be eligible for UC with more than £16,000 of capital after the 12 month grace period and, due to the situation you describe, you may cease to be eligible sooner than 12 months.

NedS

Spoonie_Turtle said:

To allay one of your fears, currently UC claims are being held open until after 6 consecutive months of nil entitlement.  [I don't recall whether there's any indication of that changing in the near future - it was how the original UC pilot worked, was stopped when it was fully rolled out, but reintroduced again with the pandemic.]

Automatic closure of claims nilled by earnings does not apply to S/E earnings, only PAYE earnings received by RTI.

calcotti

NedS said:

Spoonie_Turtle said:

To allay one of your fears, currently UC claims are being held open until after 6 consecutive months of nil entitlement.  [I don't recall whether there's any indication of that changing in the near future - it was how the original UC pilot worked, was stopped when it was fully rolled out, but reintroduced again with the pandemic.]

Automatic closure of claims nilled by earnings does not apply to S/E earnings, only PAYE earnings received by RTI.

Thanks for spotting that. Surplus earnings rules kick in instead and I am guessing that once managed migration is completed we will see the reduction in the monthly threshold from which they kick in.
Currently the higher threshold is extended to 2023 but I think it is likely to be extended further until managed migration is done..

NedS

ElwoodBlues said:

I think I follow that. But I don't think it covers my particular concern. My company is business to business trade (industrial IT products and service). I have customer contracts that I invoice (and they pay) annually up front. And I also sell 'big ticket' hardware. Even on the small scale that I operate on, if I have a bumper month I could raise 20k of sales invoices - that doesn't happen often, maybe once a year. But we also have quiet season where some months of the year the business has literally zero sales. (however, I'm still busy as a large part of my work involves after sales support, training, warranty, along with an element of R&D).

So if I have to put together monthly cash trading figures for UC then an exceptional month might show 10k+ of profit. Or I could have multiple months scattered throughout the year with 5k+ of profit. I wish it was like that every month, but it's not sustainable, so other months will be less, losses even. Over the year I generally end up with about 15k of take home profit (PAYE and pension contributions).

Each time I have one of those bumper months, my understanding of UC is that a high figure like that will be in excess of the income threshold to qualify for UC (which I think is about £3400/month according to online benefit calculators) will cause my UC claim to terminate. And then I'll have to make a new claim for UC (not clear if I can start a new claim immediately, or if I have to wait for the next month to elapse, as I won't have any idea until the end of the next month what that ones figures will look like. And then I'll have to wait 5 more weeks from the start of the new claim period to receive my next UC claim.

But the bigger implication of going through that cycle is that (by my understanding) as soon as I have one bumper month that terminates my UC claim, then my entitlement to any transitional protection will be lost at that point. So then they'll take my savings into consideration and I'll be ineligible for UC. Also transitional protection in respect of personal savings only lasts for 12 months beyond migration from legacy benefits, so even if I do somehow manage to massage my monthly profit for that long, and I haven't spent (or squandered!) it by then, I'll lose the transitional protection anyway, and again become ineligible. If I do spend the savings in that time, they could also accuse me of depriving myself of savings and treat it as notional asset anyway.

https://www.gov.uk/universal-credit/how-your-earnings-affect-your-payments

https://www.entitledto.co.uk/help/Deprivation-of-savings-and-other-capital-Universal-Credit

If you have irregular cash flow leading to occasional very large monthly earnings, you may be subject to surplus earnings regulations. That will largely depend on whether you have previously recorded losses that those earnings can be written off against (in a start up year).

For example:

Make a UC claim in Jan, purchase £20,000 of stock (loss of £20k) in Feb, sell £15k of stock in March for a profit of £15k written of against previous loss of £20k taking carried forward loss of £5k.

Contrast that to the following:

Purchase £20,000 of stock in Feb, make a UC claim in March and sell £15k of stock making a £15k profit. There are no previous losses on UC to offset the £15k of earnings against so there will be a NIL award due to earnings and surplus earnings will carry forward to NIL the next AP(s) until depleted.

Your cash flow ledger (for UC purposes) essentially resets to zero on the day you make your claim for UC. So if you purchase very large amounts of stock, it makes a huge difference whether you make that purchase the day before or the day after making a claim for UC.

UC does not deal well with very large irregular earnings. The surplus earnings disregard smooths that out for all but those businesses with very large cash flows, at which point one wonders why they would be claiming UC (I saw a S/E claimant before covid with a business turning over in excess of £1.5M)

ElwoodBlues

calcotti said:

NedS said:

Spoonie_Turtle said:

To allay one of your fears, currently UC claims are being held open until after 6 consecutive months of nil entitlement.  [I don't recall whether there's any indication of that changing in the near future - it was how the original UC pilot worked, was stopped when it was fully rolled out, but reintroduced again with the pandemic.]

Automatic closure of claims nilled by earnings does not apply to S/E earnings, only PAYE earnings received by RTI.

Thanks for spotting that. Surplus earnings rules kick in instead and I am guessing that once managed migration is completed we will see the reduction in the monthly threshold from which they kick in.
Currently the higher threshold is extended to 2023 but I think it is likely to be extended further until managed migration is done..

Thanks, that's somewhat reassuring that S/E claims aren't closed immediately. However, as I'm technically an employee (albeit of my own ltd company), my earnings are PAYE so they will have that reported to them via RTI, despite my PAYE income being totally unrelated to the monthly cash profit figure of the company.

I think the current threshold (temporary one) is £2500, but £300 is intended to be the norm? I think I'll be entitled to UC with a monthly income of up to about £3400. So does that mean that if in a particular month I earn between 3400 and 5900, I'll get no UC for that month (fair enough), but they won't carry any surplus forward for future months? Only if I go over £5900. If so, that actually seems fairly generous. £300 would make things much tighter though.

What I'm trying to get my head around next is how carried forward surpluses and losses interact with the MIF in subsequent months? Do they apply the MIF before adding in the surplus or loss to carry forward or include the loss/surplus before the MIF?

As per NedS's second example above, if there was a 9k profit showing in AP1, I'd receive zero UC and carry forward a surplus of £3100 (9000-5900). If AP2 by itself then shows a loss of say 3000 is the calculation:

a) Loss ignored, as they assume I should have earnt MIF, and then the surplus added on to give an income of 1030(MIF)+3100=£4130. Hence zero UC again, but no further surplus to carry forward as it's under the 5900 threshold?

b) Include the loss in AP2 before applying the MIF, to give 3100-3000=100 overall profit for AP2, but then apply the MIF to bring that up to a notional income of 1030 and UC calculated on that? (This would mean about £850 UC according to the online calculators)

On the other hand if, the business income was regular over these two months (9000-3000=6000), it would be 3k per month and the UC on that works out to about £150 per month.

So UC will vary dramatically month on month (in arrears too) due to the cashflow circumstances of the business - which I have little control over as it totally depends on when my customers settle their accounts. Some pay immediately, and some of the big corporates pay 2 months net (so up to 90 days after they've been invoiced).

On top of all this, I can't see how Corp Tax and dividend tax (if applicable, I don't receive a divi myself, it's all PAYE) works into things in terms of UC calculation? I obviously have to put aside 19% of any company profit in anticipation of having to pay corp tax bill (which is up to 18 months down the road). But it seems like UC makes no such provision for that - they assume that all business profit is my income. I suppose they should take a corp tax bill into trading profit/loss calculation for the AP in which the corp tax bill is paid. But that is absolutely ludicrous that I'll basically be receiving UC up to 18 months after I was really in need of it. 

They really are forcing a square peg into a round hole with treating ltd company directors as though they're SE. I get that they don't want company owners hiding profits within the company structure, but often there are legit reasons for a business to accumulate some profit month to month (e.g. what if the business is saving up for a big capital purchase, a new van or machinery for example). Again the UC calcs would all be in arrears, and then when I actually buy the new equipment there will be a huge loss, by UC calc rules - but they'll still apply the MIF even on that month, so you're always going to lose out.

They could just treat dividend payments as income. 

calcotti

ElwoodBlues said: Thanks, that's somewhat reassuring that S/E claims aren't closed immediately. However, as I'm technically an employee (albeit of my own ltd company), my earnings are PAYE so they will have that reported to them via RTI, despite my PAYE income being totally unrelated to the monthly cash profit figure of the company.

Doesn't matter, for UC you are treated as if self employed. 

One of your 'self-employment' expenses is the salary and employers NI you pay to yourself.

if you want to understand surplus earnings, read this
https://revenuebenefits.org.uk/universal-credit/guidance/entitlement-to-uc/self-employment/surplus-earnings-and-losses

ElwoodBlues said: So UC will vary dramatically month on month 

Yes

ElwoodBlues said:On top of all this, I can't see how Corp Tax and dividend tax (if applicable, I don't receive a divi myself, it's all PAYE) works into things in terms of UC calculation? I obviously have to put aside 19% of any company profit in anticipation of having to pay corp tax bill (which is up to 18 months down the road). But it seems like UC makes no such provision for that - they assume that all business profit is my income. 

When you pay HMRC that is a business expenses. I think you could choose to spread your tax liability by making payments to HMRC across the year - that could help smooth the fluctuations.

ElwoodBlues said:They could just treat dividend payments as income. 

Dividends are completely ignored for UC. A dividend is simply a transfer of profit from the business to you and the profit has already been taken into account in the UC calculation as a result of the way you report your business income and expenditure.