The minimum income floor in Universal Credit — what is it, and when does it apply?

A how-to guide looking at when the minimum income floor is applied to self-employed earnings

This article was originally published on 28 September 2020. It was updated most recently on 19 March 2024

Universal Credit (UC) introduced the concept of the ‘minimum income floor’ (MIF) which did not exist in the legacy benefits UC is replacing. The MIF is an earnings threshold that applies to some self-employed clients. If their actual self-employed earnings are below the MIF, they will be treated as having earnings at the level of the MIF instead. This can cause considerable loss of benefit income for affected clients.

This article looks at what the MIF is, when it is applied, and how your client might be able to avoid being subject to the MIF. A second article looks at how the MIF will affect the calculation of the UC award, and ways it might be possible to reduce its impact.

What is the minimum income floor?

The minimum income floor (MIF) can be thought of as a replacement to the conditionality regime in UC for clients who are self-employed. It is meant to incentivise those clients to increase their self-employed earnings. Where a business consistently generates low profits, the MIF effectively presents a choice between continuing with a reduced income or giving up self-employment and looking for paid work — and becoming subject to the UC conditionality regime.¹

Not all self-employed clients will be subject to the MIF. This will depend on their circumstances and the nature of their self-employment, whether they are in a start-up period, and in some cases up to July 2022, whether their business continues to be affected by the coronavirus pandemic. This article looks at when the MIF should or shouldn’t be applied to a client.

Self-employed clients who have claimed UC since the start of the pandemic may find they start being subjected to the MIF following the end of the temporary measures. They could see significant reductions in their UC, particularly if their earnings remain low at that point. It will be particularly important to check whether your client is someone who should actually be subject to the MIF in the first place, and, if so, whether it has been applied/calculated correctly. If the MIF is not applied to a client, then their actual earnings from self-employment will instead be used to calculate their UC entitlement. Self-employed earnings are receipts less allowable expenses, income tax, NI and pension contributions paid in that assessment period and any unused losses carried forward.²

When is the Minimum Income Floor applied?

A client is subject to the MIF if they meet all 3 of the following conditions³:

• They would otherwise be in the all work-related requirements group of UC;
• They are in gainful self-employment; and
• They are not within a start-up period.

If any of these conditions are not met, the MIF should not be applied to the client, and their actual earnings from self-employment should be taken into account instead. This article will look at each of these conditions in turn, and the temporary changes from March 2020 to August 2022 during the coronavirus pandemic.⁴

All work-related requirements group

The MIF is only applied to clients who are in the ‘all work-related requirements’ group of UC claimants — those who fall within section 22 of the Welfare Reform Act (WRA) 2012. Anyone who is in any of the other groups (no work-related requirements, work-focused interview only, or work-focused interview and work preparation) will not be subject to the MIF. This includes:

• clients with limited capability for work or limited capability for work and work-related activity;
• carers looking after severely disabled people;
• responsible carers for children under 3;
• pension-age clients in a mixed age couple; and
• some students.

Where a client is subject to the MIF it is important to check whether there is a way they can be moved out of the all work-related requirements group. For example, a carer who isn’t entitled to Carer’s Allowance may still be moved into the no work-related requirements group under the discretion of the Department for Work and Pensions as long as they’re looking after one or more people in receipt of a qualifying benefit for at least 35 hours per week in total. Getting the DWP to move a client in this situation into the no work-related requirements group will stop them being subject to the MIF.⁵

Where a client has a temporary suspension of work-related requirements,for example in cases of domestic violence, or during a temporary illness, they still fall under the all work-related requirements group so can still be subject to the MIF.⁶ However, it may be worth checking whether they are still in gainful self-employment (see below).

Once the MIF is imposed on a client, they will not be subject to any work-related requirements.⁷

Gainful self-employment

In order to work out whether to apply the MIF, the DWP must first carry out a determination as to whether a client is in ‘gainful self-employment’ (GSE). To be in GSE,

• their business will need to be the client’s main employment;
• their earnings will need to constitute self-employed earnings; and
• their business will need to be “organised, developed, regular and carried on in expectation of profit.”⁸

Whether the client’s self-employment is their main employment or not will depend on what else the client is doing, how much time they spend on their self-employment, and what their goals and intentions are. If the client has a paid job which takes up more hours per week or which gives them a greater proportion of their weekly income, their self-employment probably won’t be their main employment. Even if their self-employment is all that the client is doing, it may not be their main employment if it is for minimal hours or if it is not their main goal.⁹

The business also needs to be ‘organised, regular, and carried on in expectation of profit.’ There must be a realistic expectation of making a profit from the business. The Advice for Decision Making (ADM) guidance in Chapter H4 at paragraph H4050 lists factors that should be taken into account, including:

• whether the activity is for financial gain;
• the number of hours spent on the work;
• any business plan or steps to increase activity;
• the status with HM Revenue and Customs (HMRC);
• any work in the pipeline; and
• whether the client is actively marketing or advertising for work.

The work must be regular, although seasonal variations would not stop the work being considered regular in the off-season.¹⁰

At the start of a UC claim by a self-employed client, the DWP would usually carry out a gateway interview to determine if the client is in GSE.¹¹ Clients who claimed UC between March 2020 and August 2021 are likely to have had the interview and determination delayed until after August 2021.

The question of whether a client is in GSE in relation to a new business may depend on their plans for the future and steps they are taking.¹² If circumstances change a new determination can be carried out. For example, an established business may stop being profitable. In a case where self-employed earnings are negligible, and there is limited scope for increasing them, a new decision can be made that the client is no longer in GSE, even if they remain registered with HMRC as self-employed.¹³

A period of sickness may not stop someone being in GSE, if it is considered to be part of the normal pattern of working life.¹⁴ However, during a more long-term illness which disrupts the normal pattern of the business, such as a period of recovery from an operation, a client should not be considered to be in GSE. They may also be found to have, or be treated as having, limited capability for work (LCW), which would take them outside the all work-related requirements group, and therefore outside the scope of the MIF altogether.

Note that a determination that a client is in GSE may not carry a right of appeal, so the client would need to appeal the UC entitlement decision that results from a decision to apply the MIF.¹⁵ If challenging a decision based on a GSE determination that they do not agree with, it may be helpful to refer to the guidance in Chapter H4 of the ADM.

Start-up period

The MIF should not be applied to the client for any assessment which falls within a start-up period (including an assessment period that begins or ends in a start-up period).¹⁶

The start-up period is a period of 12 months, starting from the beginning of the assessment period in which the DWP determines a client is in GSE. The client can only get a start-up period if they’ve not already been subject to the MIF in relation to the same business. They must be taking active steps to increase their self-employed earnings to the level of their threshold.

In addition, no start-up period can be applied if the client had previously had a start-up period, even in relation to a previous business, unless the previous start-up period began longer than 5 years before.¹⁷

Note that the rules about start-up periods were more restrictive before 23 September 2020.¹⁸

The start-up period can continue for up to 12 months, as long as the client remains in GSE and continues taking steps to increase their earnings throughout that time. A start-up period can be ended by the DWP at any time if the client either stops being in gainful self-employment or is no longer taking the active steps.¹⁹ Once a start-up period has ended, the client would not then be able to have another start-up period in relation to the same business (or a new business within 5 years). However, if a client’s UC claim ended while in a start-up period and they claim UC again within the same start-up period, the original start-up period will not have ended and the remaining months can apply.²⁰ Some clients’ start-up periods may have been extended longer than 12 months due to the coronavirus pandemic temporary measures.²¹

Note that the date the client is determined to be in gainful self-employment from, may be earlier than the date that the determination is made, for example if it has taken longer for the DWP to gather evidence and the determination is not made until a later assessment period.²²

During the start-up period, there is technically no exemption from work-related requirements. This is because the exemption in regulation 90(5) of the Universal Credit Regulations 2013 applies only to those who are treated as having earned income due to the MIF, which is not the case during the start-up period. However, the client already has to be taking steps to increase their income in order to qualify for the start-up period in the first place.²³

It seems likely that this would be enough to satisfy the client’s work-related requirements. The DWP’s guidance on Universal Credit for the self-employed states that during the start-up period, the client must come to meetings with their work coach and show evidence of taking active steps to increase self-employed earnings, but won’t have to look for, or be available for, other work.²⁴

Coronavirus measures

Temporary measures were in place from 30 March 2020 to 31 July 2021. The regulations allowed the DWP to avoid applying the MIF to a claimant through a number of routes. The provisions were then partially extended until 31 July 2022. During this period, the MIF was gradually reapplied to claimants. In some cases, a new GSE determination was needed before the MIF could be reapplied. Also during this period, the MIF could be suspended for a period if the client’s business continued to be affected by the pandemic.²⁵

From 1 August 2022, the temporary mechanisms for suspending or reducing the impact of the MIF have all been removed. A client who has started to be affected by the MIF again should check that all the usual MIF rules have been correctly applied, including the start-up period. If the client’s circumstances have changed and they think they are no longer in GSE, they should ask for a new GSE determination.

Avoiding the MIF

As an adviser, there are therefore a number of things you’ll need to check with your client that may allow them to avoid the MIF altogether, even after the expiry of the coronavirus measures.

• It may be possible for the client to be moved out of the all work-related requirements group.
• It may also be possible to challenge a determination that a client is in GSE, or request a new determination if a client’s business has ceased to be profitable as a result of the pandemic.
• Any client who is assessed as being in GSE for the first time from 23 September 2020 onwards should have a start-up period applied. Clients in a start-up period in March 2020 can get the rest of their start-up period when the MIF is reapplied.

In all of these cases, the client’s actual self-employed earnings will be used rather than the MIF.

In cases where it is not possible to avoid the MIF, our second article looks at what happens to a client’s UC award when the MIF is applied, and how it affects the calculation of UC.

Josh Gilbert is a Benefits Expert in the Expert Advice Team at Citizens Advice.

References

[1] Parkin, R (On the Application of) v SSWP [2019] EWHC 2356 (Admin)

[2] Regulation 57, Universal Credit Regulations 2013

[3] Regulation 62(1) and (5), Universal Credit Regulations 2013

[4] Regulation 2, the Social Security (Coronavirus) (Further Measures) Regulations 2020

[5] Regulation 89(1)(b), Universal Credit Regulations 2013

[6] Regulations 98 and 99, Universal Credit Regulations 2013

[7] Regulation 90 (5), Universal Credit Regulations 2013

[8] Regulation 64, Universal Credit Regulations 2013

[9] ADM Chapter H4 paragraph H4023

[10] KD v SSWP (CUC): [2020] UKUT 18 (AAC)

[11] ADM Chapter H4 paragraph H4021

[12] ADM Chapter H4 paragraph H4053

[13] ADM Chapter H4 paragraphs H4054 — H4055

[14] ADM Chapter H4 paragraph H4057

[15] KD v SSWP (CUC): [2020] UKUT 18 (AAC)

[16] Regulation 62(5), Universal Credit Regulations 2013

[17] Regulation 63(2), Universal Credit Regulations 2013

[18] The changes were reduced under regulation 6(1), The Universal Credit (Managed Migration Pilot and Miscellaneous Amendments) Regulations 2019

[19] Regulation 63(3), Universal Credit Regulations 2013

[20] ADM Chapter H4 paragraph H4102

[21] The Universal Credit (Coronavirus) (Restoration of the Minimum Income Floor) Regulations 2021

[22] ADM Chapter H4, paragraph H4100 Note 1

[23] Regulation 63(1)(b) Universal Credit Regulations 2013

[24] DWP Guidance, Claiming Universal Credit when you are self-employed, (website checked 19/03/2024)

[25] Regulation 6, The Social Security (Coronavirus) (Further Measures) Regulations 2020; The Universal Credit (Coronavirus) (Restoration of the Minimum Income Floor) Regulations 2021