The minimum income floor in Universal Credit — how does it affect a Universal Credit award?
A how-to guide looking at what impact the minimum income floor has on the calculation of a Universal Credit award
This article was originally published on 28 September 2020. It was updated on 21 March 2024
This article looks at how the minimum income floor (MIF) in Universal Credit (UC) affects a UC award, including possible ways to reduce its impact. It should be read with the first article on what the MIF is, and when it is applied.
What impact does the Minimum Income Floor have on a client’s UC?
If the MIF applies to the client, it will be used instead of their actual self-employed earnings.
The client’s self-employed earnings are calculated by deducting allowable expenses from the actual receipts they receive in an assessment period. Chapter H4 of the Advice for Decision Making guidance (ADM) gives examples of allowable expenses. From this any income tax, national insurance contributions, and pension contributions paid in that assessment period, should be deducted as well as any unused losses carried forward from a previous assessment period.¹
If the MIF does not apply to your client, then this is the earned income figure that will be taken into account in the UC assessment.
However, if the MIF does apply, the MIF replaces the actual earned income figure if it is lower than it. It is then used in place of the actual earned income figure in the UC assessment.
The level of the MIF will depend on the client’s circumstances, and their partner’s income if they have one. So even if your client can’t avoid having the MIF imposed on them, there may still be options for reducing the impact that the MIF has on their UC award.
How is the MIF calculated?
If the MIF is applied to your client, it will be set at the level of their individual threshold.²
The individual threshold is the minimum wage rate that applies to the client’s age group, multiplied by their expected number of hours and converted to a monthly amount.³ A notional amount for tax and national insurance contributions (but not pension contributions) is then deducted.
The expected number of hours will normally be 35 per week, but a lower number can be set with the agreement of a work coach.⁴ As the MIF is calculated using the expected hours, negotiating a lower number of expected hours could significantly reduce the impact of the MIF.
Situations when fewer than 35 hours might be agreed include those where the client:
- is a responsible foster parent;
- is the ‘responsible carer’ for a child, which means a single parent, or the nominated member of a couple;⁵
- is the ‘relevant carer’ for a child, which means that they have caring responsibilities for a child but are not the responsible carer;
- has caring responsibilities for someone with a physical or mental health condition; or
- has a health condition.
It may be helpful to quote the ADM, which gives some specific guidance about appropriate expected hours for certain circumstances. The guidance on expected hours is in the ADM at Chapter J2 on work-related groups and Chapter J3 on work-related requirements.
The DWP used to apply a maximum number of expected hours of 16 for a responsible carer of a child aged 3–4, and 25 for a responsible carer of a child aged 5–12. In October 2023, the DWP announced that this was changing to a maximum number of expected hours of 30 for a responsible carer of a child aged 3–12. However, a lower number than 30 may still be appropriate in individual cases.
In relation to clients with health conditions, paragraph J3060 gives an example of Carl whose expected hours are reduced to 10 per week due to the impact of his rheumatoid arthritis. This would reduce his individual threshold from £1,542.69 to £495.73 per month (2024/25 rates, if Carl is aged 21 or over).
If your client is a member of a couple, then the MIF that applies to them will be reduced by the amount that the sum of their MIF plus their partner’s earnings exceeds the couple threshold.⁶ The couple’s threshold or joint threshold is the sum of their individual thresholds, with deductions for notional income tax and national insurance. It will be important to check whether your client’s partner’s individual threshold can also be reduced by reducing their expected hours, as well as your client’s, in order to reduce the level of the couple threshold.
There are therefore 3 possibilities if your client is a member of a couple:
- If their actual combined earnings are above their couple threshold, your client’s actual earnings will be used, and the MIF will not be applied.
- If their actual combined earnings are below their couple threshold, but the sum of your client’s individual threshold and their partner’s actual earnings is above their couple threshold, the MIF will be applied. Your client’s individual earnings threshold will be used, but it will be reduced by the amount by which the sum of their individual earnings threshold combined and their partner’s actual earnings exceeds the couple threshold. In other words, it is reduced by the excess income their partner has above their own individual threshold.
- If their actual combined earnings are below the couple threshold, and the sum of the client’s individual threshold and the partner’s actual earnings is also below the couple threshold, the MIF will be applied. In this case the client’s individual earnings threshold will be used, without any reduction.
The effect of this is that a couple won’t be required to earn more than their joint threshold. The client’s MIF is reduced to ensure that this does not happen. This means that those with higher earning partners will be less affected by the MIF.
Once the appropriate level of the MIF for your client has been calculated, this is the figure for earned income that will be used for that client in respect of their self-employed earnings, instead of their actual self-employed earnings. The usual UC calculation will then apply, including applying the work allowance if appropriate and the 55% earnings taper.⁷
What happens to a client while the MIF is applied?
While the MIF is applied to a client, they are not subject to any work-related requirements.⁸
If the client’s circumstances change so that they should no longer be subject to the MIF, then the MIF will be lifted from the start of the assessment period in which they inform the DWP of the change, and their UC award in that assessment period will be assessed based on their actual earnings rather than the MIF.⁹ Note that if the MIF stops being applied, then the client will once again be subject to whatever work-related requirements are relevant to the group they are in.
Under the UC surplus earnings rules, if your client’s entitlement to UC ends because their earnings are too high, the earnings are carried forward into subsequent assessment periods if they are over a certain threshold. They will therefore reduce UC entitlement under a subsequent UC claim. See our article on Surplus Earnings and Universal Credit for more information. If a client has surplus earnings taken into account for UC, those surplus earnings may lift their earned income up towards the individual or couple threshold so that the MIF does not apply. Their actual earnings plus surplus earnings would be taken into account instead.¹⁰
If a client has unused losses that are carried forward to the next assessment period, and is subject to the MIF, the MIF will still be applied to whatever earnings figure is left after the unused losses are carried forward.¹¹
Income a client is treated as having due to the MIF is not taken into account in working out if they earn enough to be exempt from the benefit cap — only their actual earnings are taken into account.¹²
If a client is unwell, a work capability assessment may be appropriate. If the client earns above the monthly threshold (£793.17 in 2024/25) they cannot be referred for a work capability assessment for the first time unless they are receiving a disability benefit. If a client’s actual earnings are below this amount, they may be able to argue that they can be referred for a work capability assessment even if their MIF level (and therefore the earnings taken into account in the UC calculation) is above £793.17.¹³
In practice, the only realistic option for many clients affected by the MIF will be to give up GSE. They don’t need to give up their self-employment altogether, as the MIF should not be applied as long as their self-employment does not constitute GSE. The judgment in Parkin, R (On the Application of) v SSWP [2019] EWHC 2356 (Admin), which found that the MIF is justifiable, concludes at paragraph 108 that the MIF encourages clients in GSE “whose enterprises consistently generate low profits, to think carefully about whether they should continue to be in GSE… [the MIF] encourages a rational claimant in that position to ask whether continuing in GSE is in his own best interests.” A client could instead make their main focus the pursuit of paid employment in which case they will no longer be GSE and will be subject to the UC work-related requirements instead.
A client should not be sanctioned for giving up self-employment — this is confirmed in the guidance in Chapter K2 of the ADM at paragraph K2224.
Case study
Ciara
Ciara, 40, is a single parent with two children, aged 14 and 11. Ciara pays rent to a housing association of £110 per week. She is in the all work-related requirements group, and has expected hours of 30.
Ciara’s maximum monthly UC consists of (2024/25 rates):
£
393.45 standard allowance
333.33 child element (first child)
287.92 child elements (second child)
476.67 housing costs element
— — —
1,491.37 total maximum UC
Ciara’s start-up period has ended. Her individual threshold is calculated by multiplying her expected hours of 30 by the appropriate minimum wage rate of £11.44, which is converted to a monthly figure of £1,364.22 after notional deductions for income tax and national insurance contributions. Ciara’s individual threshold is £1,364.22.
Currently, Ciara is earning £250 from her self-employment. As this is below the individual threshold, the MIF is applied and the individual threshold of £1,364.22 is used instead of her actual earnings to calculate her UC entitlement. After deducting the £404 work allowance and applying the 55% taper, Ciara’s UC is reduced by £528.12. She is left with UC entitlement of £963.25 per month.
Ciara could try challenging the decision on the grounds that she is not in GSE, if she can argue that the self-employment is not her main employment or is not currently profitable. If the MIF wasn’t applied to Ciara, her actual earnings of £250 per month would be taken into account. This is below the work allowance so she would receive the maximum UC of £1,491.37 per month, without a reduction.
Alternatively, Ciara could try to negotiate a lower amount of expected hours with her work coach, depending on her circumstances. For example, if the expected hours were reduced to 20 per week, the individual threshold would be £991.47 which would mean her UC was reduced by £323.11 per month instead of £528.12.
Ciara and Tariq
Ciara decides to move in with her partner Tariq, who earns £1,800 per month after tax and NI contributions.
Ciara and Tariq’s maximum monthly UC now consists of:
£
617.60 standard allowance
333.33. child element (first child)
287.92 child elements (second child)
476.67 housing costs element
— — —
1,715.52 total maximum UC
Ciara and Tariq’s joint earnings threshold is calculated as follows. Tariq’s expected hours are the standard level of 35 per week, so his individual threshold is 35 x £11.44, converted to a monthly amount from which notional tax and NI is deducted, coming to £1, 542.69 per month. This means that Ciara and Tariq’s joint earnings threshold is £1,364.22 plus £1,542.69 which comes to £2,906.91.
Their actual combined earnings are £2,050, which is below the joint earnings threshold. Therefore the MIF needs to be applied to Ciara’s earnings.
Ciara’s MIF of £1,136.22 (see above) added to Tariq’s actual earnings gives £2,936.22. This is £29.31 above the joint earnings threshold of £2,906.91. As a result, the figure of £29.31 is taken off Ciara’s individual threshold, leaving a figure of £1,106.91. Ciara will be treated as having earnings of £1,106.91 rather than £1,136.22 as a result of this reduction. This means that the MIF has slightly less impact on the UC award than it would have done as it’s been adjusted because of Tariq’s income. The process ensures that they aren’t treated as having earnings over the joint threshold. Ciara’s reduced MIF of £1,106.91 is then added to Tariq’s actual earnings of £1,800, to give total earnings of £2,906.91 pcm that they are treated as having.
The UC is calculated as follows. Earnings of £1,16.91 for Ciara (calculated using the MIF as above) and £1,800 for Tariq (his actual net earnings) come to a total of £2,906.91. This is reduced by a work allowance of £404 and the 55% taper is applied to the rest, leaving a figure of £1,376.60. The maximum UC of £1,715.52 is reduced by £1,376.60. This leaves Ciara and Tariq with a monthly UC award of £338.92.
By way of comparison, if the MIF hadn’t been applied at all, the monthly UC award would have been £810.22.
Conclusion
The MIF can significantly reduce your client’s income from UC, particularly in cases where there is a big gap between their actual earnings and the level of the MIF. However, in some cases it is possible to reduce this gap by reducing the ‘expected hours’ used to calculate the level of the MIF. It is always worth seeing if there are any ways to avoid the MIF altogether, as we covered in our first article.
Josh Gilbert is a Benefits Expert in the Expert Advice Team at Citizens Advice.
References
[1] Regulation 57, Universal Credit Regulations 2013
[2] Regulation 62 (3) and (4), Universal Credit Regulations 2013
[3] Regulation 90(2), Universal Credit Regulations 2013
[4] Regulation 88, Universal Credit Regulations 2013
[5] Section 19(6), Welfare Reform Act 2012
[6] Regulation 63 (3), Universal Credit Regulations 2013
[7] Regulation 22, Universal Credit Regulations 2013
[8] Regulation 90(5), Universal Credit Regulations 2013
[9] Regulation 35(1) and Schedule 1 Part 3, Universal Credit, Personal Independence Payment, Jobseeker’s Allowance and Employment and Support Allowance (Decisions and Appeals) Regulations 2013
[10] Regulation 62(4A), Universal Credit Regulations 2013
[11] ADM Chapter H4 paragraph H4503
[12] Regulation 82(4), Universal Credit Regulations 2013
[13] Regulations 41(2) and 90(6), Universal Credit Regulations 2013
