Universal Credit: The facts
The current coronavirus situation means that some self-employed individuals have seen a significant fall in income with many unable to work at all. The Coronavirus Self Employment Income Support Scheme has been specifically set-up to support the self-employed but as it does not provide financial support until June, many self-employed people require access to state benefits until it does.
The myths
It has been widely reported that the amount you can receive via universal credit is around £100 a month. In actual fact, the amount you can receive depends on your personal circumstances as this state benefit is means tested and will vary depending on who you live with and/or if you have children for example.
The facts
What is Universal Income (UC)?
Universal credit was first introduced in 2013 and replaced six legacy benefits, including:
Working Tax Credit
Child Tax Credit
Housing Benefit
Income Support
Income-based Jobseeker’s Allowance
Income-related Employment and Support Allowance.
The idea was that all those currently claiming these 6 legacy benefits were to move over to UC by 2014,but due to significant changes to the timetable, the revised transfer was pushed back to between November 2020 and December 2014.
This delay has meant that, now with the coronavirus in the picture, we have two systems running alongside each other – UC and the old legacy benefits system.
Important note:
If you currently receive one of the legacy benefits and make a claim for universal credit, whether in the current climate or in normal times, you will move away from the legacy benefits permanently and remain on the new system. This is an important point as you may want to consider if you are financially better off on your current benefits versus universal credit.
How much can I receive on UC?
UC is means tested, which means that your personal circumstances and savings will be taken into consideration when you apply and will taken into consideration the financial circumstances of your partner, if you live with one.
What we are seeing on the ground is self employed people expecting to receive the equivalent of statutory sick pay (SSP) as announced by the Chancellor on 20 March, but this has not been the case as their partner’s income is too high and therefore not eligible to receive a payment.
Another important point to be aware of is that there is a capital limit of £16,000. So what this means is that if an applicant for UC has savings or capital above this amount, you will not be entitled to UC, no matter your income. Furthermore, if you have savings or capital between £6,000 and £16,000, what you can claim under UC will be reduced the more savings or capital you have.
Who is UC for?
UC is designed to help those in and out of work and those of working age. So for example you are pension age, you would not eligible but perhaps be eligible for another benefit, such as the pension credit instead.
UC usually has work-search requirements associated with it, so there is an expectation that if you are claiming for UC you are also actively looking for work. This condition has clearly been relaxed at this time during coronavirus.
How can I make a claim for UC?
You can make a claim for UC online and there is usually a face-to-face meeting following online application. Currently, face to face meetings are being replaced with phone interviews.
Due to the huge backlog of claimants, please be aware there is a delay between applying online and receiving notification of your phone interview.
When will I receive funds after my UC application?
The general rule of first payment is a minimum 5 week wait before you receive your first payment.
it is possible however to receive an advance payment, which in effect is an interest free loan, an advance on UC payments, and does mean that future UC payments will be lower once you are set-up for regular UC payments.
What does UC cover?
UC has ‘elements’ within it, which will determine the amount you will receive.
These elements include covering housing costs (rent), childcare, children, disability and carers. To be clear, these elements are in addition to the basic standard allowance, which is currently set at £20 a week as part of the coronavirus package.
The standard allowance plus elements that you are eligible for are added together to a maximum amount figure. From here, any earned income above certain thresholds reduces the maximum amount figure by 63p for each £1. Unearned income reduced the maximum amount £1 for £1.
How does UC work for the self-employed and Directors?
UC is based on monthly assessment periods.
Earnings from self-employment must be reported usually within 14 days after the end of the assessment period.
UC uses the cash basis – there is no choice about this. There are also specific rules about allowable expenses and the treatment of losses.
The most controversial part of UC for the self-employed is the minimum income floor (MIF). After 12 months, anyone not earning above their individual threshold (broadly 35 hours x national minimum wage – although it may be fewer hours depending on claimant circumstances) will be treated as if they are and have their UC calculated on that basis.
The MIF has been temporarily suspended for all UC claimants from 6 April as one of the Covid 19 support measures.
The grant from the Self-Employment Income Support Scheme (SEISS) will be treated as earned income for UC. It is not yet clear whether it will be treated as income in the assessment period it is received.
Directors of limited companies are also treated as self-employed for UC purposes.
The UC Regulations contain ‘look-through’ rules so that where a claimant has a company that is analogous to that of a sole trader, they are treated for UC purposes as being a sole owner or partner.
See the RevenueBenefits.org.uk guidance for more information.
Next steps
Before you make a UC claim, there are a number of things to check.
Remember that there are non-means tested benefits that might also be applicable – for example the new-style employment and support allowance.
It is very important to get advice before making a UC claim if you are already in receipt of any of the legacy benefits that UC replaces because as soon as the UC claim is made the legacy benefit claim will terminate.
You can also use the following calculators to help identify what help might be available:
