Low paid self-employed may well be impacted by today’s minimum wage rate increases, explains LITRG

Whilst welcoming today’s announcement that benefits, including universal credit, will rise by 10.1% from April 2023, LITRG are highlighting that some self-employed universal credit claimants may not see the full value of the rise. This is because the artificial minimum income floor that is applied to some low paid self-employed claimants in universal credit is directly linked to the minimum wage which will also rise from 1 April 2023.

Self-employed universal credit claimants, who are found by DWP to be gainfully self-employed¹, may be subject to the minimum income floor (MIF)². If the MIF applies, the claimant’s actual earnings from self-employment are ignored and instead their universal credit is calculated based on the MIF.

The MIF is usually calculated as 35 hours a week x relevant minimum wage rate, less a deduction for notional tax and national insurance³. One impact of the MIF is that if a self-employed claimant earns a low amount in a particular assessment period, for example because they had less work or because they had a large business expense to pay, their universal credit will not increase to reflect their fall in actual income.

Victoria Todd, Head of LITRG, said:

“Self-employed workers are not entitled to the minimum wage so today’s announcement that the national living wage will rise by over 9.7% from 1 April 2023 may well have passed them by. However, the national minimum wage is used to set the level of the minimum income floor for some self-employed universal credit claimants.

“If the minimum income floor applies to a self-employed worker, that will therefore also increase from April 2023 as a direct result of the announced increase in the minimum wage. The MIF is effectively substituted for the person’s actual self-employed earnings and as income rises, the amount of universal credit awarded usually reduces. As a result, some self-employed universal credit claimants may not see the full value of the April 2023 10.1% increase in universal credit. This may well be detrimental for those self-employed workers who cannot simply increase their income in response to a minimum wage increase and is yet another complicated interaction between various systems that may catch people unaware.”