Self employment and moving from tax credits to universal credit

[starpatch]

The government has said they plan to move everyone from tax credits to universal credit by the end of 2024 so I thought it might be useful to have a thread for those of use who are self employed about moving from tax credits to universal credit. I have no credentials but have started doing a bit of googling.

Personal pension- still technically entitled to have contributions to personal pension discounted as income but apparently its not done automatically, advise on money saving expert is to contact your MP if you have this problem.

Calculation of earnings- apparently you can't use the trading allowance for this purpose. Its a simple money in, versus expenses and taxes paid that month calculation.

I am lucky I have more PAYE income than self employed so I am planning to make top up payments to my workplace pension and stop paying into my SIPP. I am also planning on starting to use the installments option to pay tax, will do my self assessment soon and although I have the money saved in a seperate account I will do installments in case I am moved over to universal credit. Just makes more sense as instead of having one month of self employed loss it will even out more.

Anyone out there already self employed on universal credit who can advise?

One thing I'm really struggling to get my head around is how the minimum income floor and surplus earnings interact with each other.

If you've got a surplus to bring forward into a month where you've made less than the MIF, do they assume you earnt mif and then add the surplus onto that to get your UCable income for that month?

Or do they add the surplus to your actual (lower) income?

Equally, if you're bringing forward a loss from a previous month, and that loss brings your current months income to below the MIF, do they a) calculate UC on below the MIF, b) calculate on mif and carry forward the remaining loss, c) calculate on mif, and then you lose the remainder of the carried forward loss?

Exactly how these two things interact is going to be critical if your income varies significantly month to month (as I expect it does for most self employed people). It's the difference between a bumpy ride (besr case) and losing out on a huge amount of benefits over someone on a regular monthly wage.

I think you can pay monthly Hafera, if you do your tax return as soon as it is due then you have until January to pay and I have a feeling there is an option to pay in installments. I am just about to do my tax return so I will let you know!

Maybe it’s being implemented differently from area to area, then, because it’s not working that way in this region. In particular, one specific situation has come up several times over the past couple of years: A claimant goes self employed (or a self employed person claims UC) and dutifully reports their first month’s modest income and expenses, which includes a small dividend payment and a salary. Then the UC centre calculate their payment for the month, with the dividend being deducted twice - once as reported by client as self employed income and again as PAYE salary notified to them via real time reporting. Every time the client comes for welfare advice, and each time it’s resolved and the salary is treated as PAYE going forwards. It’s definitely the standard for the caseload we see here. We’ve written it up as confusing guidance.

Every week I hear more illustrations of what a complete balls up this UC implementation has been. I’m a bit shocked by that one though, if rules are being applied inconsistently by area team.

I help a friend with his; but I think when he's moved over to UC it may be time for me to bow out as I can't justify the time I'd need to spend on it, to basically not fuck it up for him.

Reading this thread with exasperated interest.

This is really coming home to roost for me now - I've been served with notice to migrate to UC very soon. But the timing couldn't be worse, the net result is that I'll go from receiving about £290 a week in child tax credits to ZERO under UC (despite all the hollow promises of 'transitional protection' guaranteeing claimants won't be worse off).

My company has recently undertaken (what is for me) a very large order, it's a once or twice a decade sort of occurence. The price of the job is £13k, to be paid in instalments over the next 6 months. However, the cost of the equipment is about 10k, so I only actually stand to make about 3k profit on the job. However, because my business has to buy and pay for the equipment before my UC claim starts, they won't consider that cost as part of the equation for calculating my entitlement. So all UC will see is the 13k rolling in over the next 6 months and they'll consider that is pure profit. Seems barmy, but UC claims do not take into account opening stock when you start a claim.

So it'll reduce my UC claim to zero every month for the next 6 months (and probably create a further surplus to carry forward beyond then as well). The knock on effect of that is that I'll lose my transitional protection as well, so I'm going to be even worse off.

I'd actually be better off financially if I'd declined the big job, and preserved my benefits. Only solution I can see is to transfer the company out of my name so I'd then be treated as an employee instead. If I wasn't running my own business (self employed in their eyes), I could work less hours, earn less money and receive more UC. So, so tempting to just give it all up, despite my company trading successfully for 15 years.

I've read pages and pages of regulations and guidance and other claimants issues online, and the UC system really is completely stacked against the claimants (yes, even the genuine ones).

thanks for starting this OP! I'm still on old system and a bit confused about it all tbh. Would love to stay up to date.

I've read through all of above and am still pretty confused.

Like others I have very variable months of business. Some months I can earn thousands and other months nothing. I can probably smooth it out a bit by invoicing more regularly.

But what about a month when I need to buy a new computer or something? For me that could cost 2.5k, and wipe out the whole month's profit! This would likely balance out over a year but within one month that would look bad.

As if it wasn't hard enough for us small business owners... !!

Not to mention the changes in the hourly working requirement etc upcoming for single parents and other parents on tax credits.

Baffling and concerning.

What is it you do? If you have a 'successful business' that's been established for 15 yrs why do you need £290 pw CTC? That's the equivalent of £1256 per month excluding housing costs. How successful is that in reality?

I supply equipment to the retail and hospitality industry. It's successful in that it's always provided me an income (almost like a skilled trade would, rather than growing an empire like Lord Sugar). But since becoming a single parent to 3 primary age kids, I've had to cut back my work, and covid followed by the COL crisis made a negative impact too. Hopefully when the kids are a bit older and the economy is a bit less uncertain I'll be able to build it back up.

Or I could throw in the towel and go and get a part time min wage job and claim even more in benefits? Online UC calculators suggest I'd have to be earning over about 35k to put me above eligibility for UC, and it would be even more than that if I were claiming the housing element. Reality is that recent governments have created a society/economy where the lower-average earners are dependent on benefits to top up their income just to survive.

Tax credits are currently less than I stated, but I'm guestimating that's what they'd increase to soon with the inflationary increases. Online UC calculators suggest I'd get about £35 a week less on UC than tax credits, which transitional protection ought to uplift by. Except that because my income is irregular, I won't get anything on a good month, and on a bad one UC assumes I've earnt the minimum income floor and calculates my benefits based on that.

Your minimum income floor (MIF) will be based on 25 hrs x minimum wage until your youngest child is 13 when it will increase to 35 hrs pw.

You'll first have a meeting to establish if you are gainfully self employed. If so, despite having an established business you'll get a year long start up period which is effectively 12 assessment periods (AP) where the MIF is not applied. You will need to attend the Jobcentre every 3 months during this period to discuss how your business / profit is progressing. During this period you can sometimes be found to be not gainfully self employed and be expected to look for paid work and attend weekly/fortnightly JC appointments. From the 13th AP, if still considered GSE the MIF will apply and you will no longer be required to attend JC appointments.

Whether actual profit or MIF you will still have a work allowance applied and only 55% of your remaining income will be taken into account.

@carben what is a "work allowance"

Work Allowance
In some cases, you may be eligible for a work allowance. A work allowance is the amount that you can earn before your Universal Credit payment is affected.
You will be eligible for a work allowance if you (and/or your partner) either have:
• responsibility for a child
• limited capability for work
The monthly work allowances are set at:

£344
If you are getting housing costs as part of your Universal Credit award, or housing costs from the Local Authority because you are in temporary accommodation
£573
If you do not receive housing support
If you have earnings but you (or your partner) are not responsible for a child or do not have limited capability for work you will not be eligible for a work allowance.

Does anyone know what areas of the country are in Managed Migration to UC now?

I'd like to know this too DemonSpawn, I've had a Google but no information.
I'm hoping Northamptonshire is far down the list.

Found this on my FB group

Ug sorry to hear that cool4cats that really is very unfair about the cost of the equipment coming in before your claim starts. Greenlychee you inform universal credit of your monthly costs and tax payments so if you need to buy a new computer one month then it should be deducted.
I have gone onto paying tax monthly in advance, so that will smooth out my claim.

I think they are doing a big push now to migrate those who are just on tax credits throughout 2023 and 2024. It's about time , it's taking them so long.

dont know if this thread.still active but has anyone anyone self employed from gone from tax credits to UC me and my partner have a 3 year old so claim it for her but my partner self employed he works all week own company self employed basis camt see him wanting to sit over job centre im confused as we only get tax credits for our child

He may have to go to the job centre once, or not at all lawMB, he won't have to go regularly provided he earns over £350 or so a week. But you would be expected to look for work yourself quite soon I think under universal credit, there is another thread which is helpful

https://www.mumsnet.com/talk/money-matters/4837447-universal-credit-managed-migration-thread

thank you yes im fine with that for me just my partner is very much under the opinion i work.and earn my money so why should but i know as its for little one it has to be both of us his been doing his business for approx 6 years dosnet earn thousands but when i do a calculation its coming up they take off some off his income 55 percent or something which i.domt understand at all

no they don't take his income away, what they are saying is that you will get less than a family with no income, they are just talking about the calculation. Your husband may not need to go to the job centre at all, some people on the other thread didn't need to go at all, its just to check id if he does have to go one time.

lawMB your husband will have to go to the JC about his self employment. He will have to attend something called a Gateway Intervention. This is to decide if he is 'gainfully self employed'. If he is he will be told the minimum he needs to be earning after 1 Yr. The first year will be considered a start up period and he will have to attend quarterly meeting to discuss how his business is progressing and to bring in evidence. He will need to report his self-employed income monthly through his UC account before each monthly UC payment can be calculated.

I know this is a year old thread, but hey I’ve just been migrated to UC from the 40-70 quid a week I got for 16 years for my daughter on tax credits and am finding it a total bloody nightmare. Wth!

I submitted my monthly figures yesterday, a day before the deadline (ironically payments of a lump sum owed to me for a design job I was doing from Jan to May!) which is about as annoying and time consuming as things can ever be, with their own categories that don’t align with HMRC’s. like I don’t have enough to do, as a self-employed single parent of a 16 year old in the first year of a levels, with two dogs, a lodger, a household to run and an elderly mum, and today they have closed my claim because I didn’t see there was a requirement to provide some financial info a few weeks ago. ‘About my investments’ what investments?! Am I genuinely suposed to check my UC account every day? What is this fresh hell? Why can’t they send me a text saying there’s something that I need to do?

the imputing of your monthly income and expenses is just a joke. I have my own system, it works well, is a day or two a year of hard work, which gives a yearly figure and that should suffice. I never lie, it reflects perfectly my rather tiny income and some rental income. Why does it have to be monthly? What do they hope to achieve? Ultimately, with their minimum income floor, it’s forcing creative people like me, who have trickled along, juggling work and parenthood, getting by on quite a small income so I can be there for my daughter, to earn more so I pay more tax. Right?

The intrusion! I have to submit bank statements! And they want to know all about the small other property I own that I am hanging onto for dear life, because it’s the only thing preventing absolute poverty in old age, due to missed years of NI when I was young (and no I can’t make up those years) and the source of valuable rental income.

why do we put up with this Kafkaesque bureaucratic hell?

To replace Blair’s sensible measure to take children out of poverty that was easy to claim, with this hellish creation, making life harder and more stressful for the poorer section of society. And suddenly being hauled over the coals! Jesus Christ! We should be rioting in the streets like the French, instead we just take it lying down.

Rant over, thanks for reading. Any advice or ways to hack the system most welcome, although it looks like there may be someone who works for the system on this thread ?! Vive La Revolution!! (Certainly not on its way with Starmer’s govt I am quite sure 😂) hope to hear from some of you, will certainly be checking in here way more than my UC account ; )) X

Hi Barefoot sincere sympathy, so no we didn't find any hacks, it does seem weighted against self employed people with the minimum income floor and the monthly accounting.