Universal credit for limited company director

NedS

The UC system does ask for and will fully deduct pension contributions for self employed people when reporting their monthly income and expenses. For people in the start up period (or not gainfully self employed), pension contributions are deducted in full as per the legislation. *

The issue comes when the MIF is applied. The MIF is applied at a fixed rate based on expected net pay (after tax and NI, but no mention of pension) for conditionality hours x NMW. If declared earnings (income after allowable expenses, including pension deductions) are below the MIF, the MIF applies.

This is potentially an anomaly between the treatment of employed vs self-employed people. Someone would have to appeal against it and argue/win the case at tribunal to potentially force DWP to change the UC system to accommodate self-employed pension contributions when the MIF applies.

Further, the intent and application of the MIF is clearly defined in the Regulations. The treatment of pension contributions are also clearly defined in the Regulations. The way the MIF legislation is written, it is clearly intended to apply AFTER any deductions have been made, potentially including (but not specifically stated) pension deductions. Although in so doing, it discriminates against self-employed people, it is not clear that it is unlawful.

* This is another discrepancy between treatment of employed vs self-employed people as here pension deductions for self employed people are actually really straight forward - they declare the contributions and they are correctly deducted, unlike for employed people making pension contributions from net pay who have to fight to have their pension contributions recognised.

huckster

@ElwoodBlues agree with Ned above re pension. When you have MIF applied and there is the issue of pension contributions unable to be fully accounted for in UC award calculations, then you would have to raise MR and probably end up going through Courts Tribunal process.

ader42

NedS said:

Someone would have to appeal against it and argue/win the case at tribunal to potentially force DWP to change the UC system to accommodate self-employed pension contributions when the MIF applies.

I was under the impression that people have appealed to the highest tribunal level and won on this basis?

I assume no change at the DWP though. 

https://forums.moneysavingexpert.com/discussion/6001734/universal-credit-and-private-pension-contributions/

ader42

Reg 55(5) a is quite clear:

https://www.legislation.gov.uk/uksi/2013/376/regulation/55/2020-05-21

(5) In calculating the amount of a person's employed earnings in respect of an assessment period, there are to be deducted from the amount of general earnings or benefits specified in paragraphs (2) to (4)—

(a)any relievable pension contributions made by the person in that period;

(b)any amounts paid by the person in that period in respect of the employment by way of income tax or primary Class 1 contributions under section 6(1) of the Contributions and Benefits Act; and

(c)any sums withheld as donations to an approved scheme under Part 12 of ITEPA (payroll giving) by a person required to make deductions or repayments of income tax under the PAYE Regulations.

calcotti

That is a different issue to that of how the MIF applies.

ader42

calcotti said:

Why that is a different issue to that of how the MIF applies.

Why what/when/who?
Please re-phrase or elaborate.

ElwoodBlues is raising questions about how MIF affects a UC calculation when a self-employed person pays into a private pension. The regulations are quite clear but often not implemented in the way they should be.

The MIF is set at a certain level, that level is before any pension deductions. If a person earns £2k but puts 3/4 of it in a pension they have still earnt £2k (so meets MIF requirements) but their “income” on which UC is based (after pension deductions) is lower so UC is higher.

Let’s look at another example, say the MIF for a certain individual is £2k.

They earn only £1800.
This is less than the MIF so the MIF amount is used.
The person pays £1500 into a personal pension.
The pension amount should be deducted from the MIF £2000, leaving £500 net income; not the £300 that would have been the case if MIF had not been applied.

I.e. UC should be calculated on the basis of net income being £500 and not £300.
This fulfils the roles of both the MIF and the deduction of pension contributions.


https://assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/file/223061/enabling_and_encouraging_saving.pdf

“ Universal Credit (UC) will increase the disregard for occupational and private pension contributions from 50% for people on income related benefits (IRBs) and housing benefit to 100%.”

calcotti

Apologies, the ‘why’ was unintended - now removed.

it is clear that pension contributions have to be taken into account by deduction from gross earnings when working how much earnings are taken into account in order to work out the earning deduction to calculate the UC payable. The earnings in general is the gross amount minus tax, NI and pension contributions.

When applicable, the MIF establishes the earned earnings (taking into account tax and NI as described in the regulation).
https://www.legislation.gov.uk/uksi/2013/376/regulation/62

Therefore pension contributions would not be deducted from the MIF.

ader42

But we know for a fact that the upper tribunals have ruled that Reg 55(5)a is correct and that all pension contributions are to be deducted.

Reg 62 does not state that pension contributions should not be deducted, so Reg 55 still applies and they should be.

calcotti

Regulation 55(5) deals with the calculation of employed earnings, not self employed earnings.

ader42

Hmm… I’ve just researched this some more and it seems that I am wrong and that this disparity between employed and self-employed does indeed exist.

I was partly going by common-sense and the calculations I had done using entitledto.co.uk which as has been noted appear to be not correct when the MIF is applied. So anyone being migrated to UC has only 12 months to make use of pension contributions due to the MIF grace period.



revenuebenefits.org.uk states:

”The MIF only applies to claimants who are placed in the all-work related requirements group”

and:

“The MIF does not take account of pension contributions, so a low-income self-employed person will not get a full deduction of pension contributions in some cases as their employed counterparts will.”

but citizensadvice.org.uk states:

” If you’re self-employed you’ll be in the ‘no work-related activity group’ if either:

• the 'minimum income floor' applies to you - check how the minimum income floor works
• you earn more than your 'earnings threshold'”
  
  

Both can’t be correct, surely?

I also found a local government website that states:
“ If you start work or you become self-employed, your take-home pay (less any pension contributions you make) counts as income for UC.”

So much confuson in this area.