CLAIMING UNIVERSAL CREDIT AS A SELF-EMPLOYED

CLAIMANT

This briefing is designed to give an overview on how to claim Universal Credit claim as a self-employed claimant only.

Should you require more detailed information on this or any other social security issue, please contact Equity’s Tax and Welfare Rights Advice and Rights Helpline on 0207 670 0223 or email [email protected] The helpline is open on Mondays and Thursdays from 10.00 am – 1.00 pm and 2.00 – 5.00 pm.

What is Universal Credit? Universal Credit is a means-tested, tax-free benefit which replaces , income- based JSA, income-related Employment Support Allowance, and Tax Credits (Child Tax Credits and Working ). It is planned that existing claims of most means- tested benefits and tax credits will be transferred to UC from 2020.

Universal Credit does not replace two key income replacement benefits that are based on your national insurance contributions. These are contribution-based Jobseeker’s Allowance or contributory Employment Support Allowance. For more information on these benefits, please see our briefing sheet ‘Claiming new Style JSA and ESA.’

If you are in receipt of contribution-based benefits, and liable to pay rent, you will still need to claim Universal Credit Housing costs (formerly Housing Benefit).

Universal Credit does not cover Council Tax costs. For help towards council tax payments, you will need to claim Council Tax Reduction from the local authority (formerly Council Tax Benefit).

Capital Note: that if you have savings above £16,000 you will not qualify for Universal Credit. If you have savings between £6,000 and £16,000 then the DWP will assume a monthly income from savings of £4.35 per month for every £250 above £6,000 and add that to any other income.

Two child-limit Anyone who is responsible for a child born on or after 6 April 2017 will not receive the child element of UC for that child unless there is no more than one child already on the claim or an exception applies. For more information about the exceptions, see https://www.entitledto.co.uk/help/Exemptions_to_2_child_limit

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Do I qualify? The basic qualifying conditions for Universal Credit are as follows:  You or your partner have to be aged at least 18 and under State qualifying age (see below) and  You must not be in full-time education (see below) and  Not be subject to immigration control (see below) and  Have accepted a claimant commitment (see below)

State Pension Credit qualifying age The current position If you or your partner have reached State Pension Credit qualifying age, you will need to claim Pension Credit instead of Universal Credit, and will generally be better off financially by doing so. To check your State Pension Credit age see https://www.gov.uk/state-pension- age/y. To claim State Pension Credit, go to https://www.gov.uk/pension-credit. If you are also liable for rent, you can claim Housing Benefit from your local authority.

The position from 15 May 2019 On 14th January 2019 the government announced that from 15 May 2019 mixed age couples, where one has reached state pension age and the other is of working age, will be unable to claim pension credit but will have to claim Universal Credit or legacy benefits if they are still available in your area (legacy benefits including jobseeker’s allowance, housing benefit and tax credits).

Those who are already receiving pension credits or pension-age housing benefit will continue to do so while they remain entitled to either benefit.

Full time education This generally means a non-advanced education course of 12 hours or more if you started it before you were 19 (e.g. A levels) or on a full-time advanced course which means above the level of A level or advanced GNVQs.

Immigration Control You are subject to immigration control if you are not a European Economic Area (EEA) national and you require leave to enter or remain in the UK or you have been given leave but subject to the condition not to have recourse to public funds.

You also need to be ‘habitually resident’ in the ‘common travel area’ which is the UK, Channel Islands, the Isle of Man and Republic of Ireland – if you are self-employed and resident in that area you should satisfy that requirement but if you are refused Universal Credit due to not being ‘habitually resident’, please contact us for further advice.

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Claimant Commitment The claimant commitment is a record of your responsibilities while you are claiming benefit. It includes the work-related requirements you must meet in order to continue to receive UC. Work-related requirements includes things like going to interviews about possible work with the DWP, work preparation, actual work searching and being available for work (see below). How you are paid Universal Credit is assessed over a monthly ‘assessment period’. The assessment period is one calendar month beginning with the first date of entitlement to Universal Credit e.g. 14th January to 13th February. Because UC bases awards on your monthly income there may be a delay of at least five weeks before you get your first payment. This is because UC is not paid for the first 7 days for most claims, and it is also paid a month in arrears.

You can request an ‘advance payment’ of UC if this is going to cause you financial hardship or other problems e.g. rent arrears. It is advisable to do this as soon as possible during the first assessment period, because if you delay until within three days of the end of the assessment period, you may not be able to get an advance unless you have transferred to UC from another benefit. To claim an advance payment of UC, call the UC helpline on 0800 328 5644.

The maximum you can claim as an advance is 100% of the estimated UC payment. This amount is repayable over a maximum period of twelve months. The repayment rate is limited to 15% of your ‘standard allowance’ (see below) or 25% if you have earnings.

How is a Universal Credit award calculated? Awards are worked out by firstly looking at the maximum you could claim which is made up of the ‘standard allowance’ and then adding any elements that apply e.g. if you have a child, you will get a child element or if you rent you will get a housing costs element. There are also elements that cover childcare costs, disability and being a carer.

Once you have worked out the maximum allowance, you add up any earnings during the relevant assessment period (which with Universal Credit is always a period of one month – see below) and then, if you are self-employed, deduct from this what are called ‘permitted expenses’ which are similar but not exactly the same as those allowable for tax purposes (permitted expenses are explained further below).

If you are allowed a ‘work allowance’ that can be deducted from your net earnings figure. A work allowance can apply when you or your partner are responsible for a child or have limited capability for work due to a disability. You then look at any other income received in the assessment period and add that up and then your net earnings and other income figure is deducted from the maximum UC amount. Only 63% of the net earnings figure (after any work allowance deduction) is deducted – this is known as the ‘taper’.

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A simple example – an employed (PAYE) worker Claiming UC as an employed PAYE worker is usually more straightforward than if you are self-employed. In this example, Jenny is a part-time teacher aged 35 with net PAYE earnings of £950 per month. She lives on her own and rents a flat for £600 per month. Her maximum award would be calculated as follows: Standard Allowance (single claimant aged 25 or over) £ 317.82 Housing Costs element £ 600.00 Maximum UC award £ 917.82 Less 63% of earnings £ 617.50 UC award £ 300.32 If Jenny were to lose her job and not receive any earnings, her UC award would look like this: Standard Allowance (single claimant aged 25 or over) £ 317.82 Housing Costs element £ 600.00 Maximum UC award £ 917.82 Less 63% of earnings £ N/A UC award £ 917.82

Claiming Universal Credit You claim Universal Credit online at www.gov./apply-universal-credit. During the claiming process you are asked a number of questions about your age, residence status, household, housing costs, etc.

If you need help with claiming online you can phone the Universal Credit helpline on 0800 328 5644.

Self-employment claims As part of the UC claiming process, you will be asked about your employment status - whether you undertake employment work, self-employment work or both. Most entertainers work on a self-employment basis.

Gainful Self-Employment (GSE) If you are usually self-employed, the DWP apply a test to see whether you are ‘gainfully self- employed.’ You are gainfully self-employed if the following applies (regulation 64, UC regs 2013):

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1. Your self-employment trade, profession or vocation is your main employment; 2. Your earnings from your trade, profession or vocation are self-employed earnings; and 3. Your self-employment is organised, developed, and regular and carried on in expectation of profit.

All three conditions must be satisfied in order for a determination of GSE to be made. There are no legal definitions for the terms listed in the third condition. You will be asked to provide evidence at an interview with a Job Centre work coach. This will include consideration of how much has been earned by the business in recent times and how much work is in the pipeline. You will be asked to provide evidence of gainful self- employment in the form of evidence like previous year’s accounts, correspondence with HMRC, bank statements, payslips and appointments diary. You may also be asked for a business plan but as members do not normally have that a professional CV should suffice and should be accepted by DWP. Being registered with HMRC, having an agent and being a member of Equity and Spotlight will help satisfy the first three conditions, as will have an established professional trajectory as shown in your CV. If you are called to a Gateway Interview we strongly advise you to contact us for further advice by phoning the Tax and Welfare Helpline on 0207-670 0223 on Mondays or Thursdays 10.00 am – 1.00 pm and 2.00 – 5.00 pm or by emailing [email protected] Minimum Income Floor (MIF) If you are found to be GSE following a DWP Gateway Interview then the DWP will treat you as having an assumed income from self-employment. This is called the Minimum Income Floor or MIF. It is calculated by reference to the National Minimum Wage or depending on whether you are under or over 25. The DWP take the number of hours you would normally be available for work which in most cases is 35 hours and multiply that by the relevant wage. They then take off a notional amount for tax and national insurance, and treat you as receiving that income per month regardless of whether you actually do. Here is an example Minimum Income Floor calculation for tax year 2019/20:

National Minimum Wage over 25 yrs = £8.12 per hour

NMW x 35 hours per week/month/year = £287.35/£1245.18/£14,942.20

Notional deductions calculated on an annual basis:- Income tax: 20% of income over £12,500* (£2442.20) = £488.44 Class 4: 9% of income over lower profits limit of £8,632 (£6310.20) =£776.88 Class 2: £156.00 (£3 per week - applied when profits exceed £6,365) TOTAL DEDUCTIONS: £1421.32 per annum/£118.44 per month Monthly assumed earnings (£1245.18) minus deductions (£118.44)

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= £1126.74 Monthly Minimum Income Floor *£12,500 is the tax-free personal allowance figure for 2019/20 The MIF creates unfairness between self-employed and employed UC claims and is an aspect of UC that has been highly criticised. For example, if in our previous example, Jenny worked as a self-employed actor rather than an employed teacher, her UC award would be as follows: Standard Allowance (single claimant aged 25 or over) £ 317.82 Housing Costs element £ 600.00 Maximum UC award £ 917.82 Less 63% of ‘earnings’ (£1126.74 MIF applied)* £ 709.85 UC award £ 207.97 * In this case, 63% of the MIF applied of £1126.74 If Jenny then does not work the next month, her UC award remains the same unlike her employed counterpart (see above, p.4). Therefore, not only do GSE self-employed claimants generally receive less UC payment, in lean months when support is needed even more, they receive even less; as per the examples, Jenny receives £688 more as an unemployed usually employed (PAYE) claimant than if she were self-employed. GSE decisions can be appealed. First you must request a statement of reasons for the decision and request that the decision is reconsidered within one month of the date of the decision. The DWP refer to this as (‘Mandatory Reconsideration’. If you wish to challenge such a decision, it is highly advisable that you seek further advice from Equity Tax and Welfare Rights Team.

Start Up Period If you are gainfully self-employed and your self-employment started less than 12 months ago then you will not have the Minimum Income Floor applied for a period of up to 12 months. So if you have only recently registered with HMRC and become self-employed you should be given a period during which the Minimum Income Floor will not apply. After that it will be applied assuming you are still seen as gainfully self-employed by HMRC.

Self-employed disabled, carer and single parent claimants Some claimants are subject to a lower MIF figure. For example, If you are a carer then the DWP will reduce your hours of availability to the number of hours which are compatible with your caring responsibilities. This includes being the ‘responsible carer’ for a child under 16 e.g. a lone parent or the parent nominated as lead carer. It also includes the carer for someone who is mentally or physically disabled.

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If you have a physical or mental impairment, the DWP will agree to reduce your hours of availability to the number it considers reasonable with regard to your disability. In both cases, your hours of availability will be the same as the hours applied to your MIF. For example: Adam is a lone parent for a child aged 10. MIF is set at 16 hours for tax year 2019/20: National Minimum Wage over 25 yrs = £8.12 per hour NMW x 16 hours per week/month/year = £131.36/£569.23/£6830.72 Notional deductions calculated on an annual basis:- Income tax: 20% of income over £12,500 - N/A Class 4: 9% of income over lower earnings limit of £8,632 - N/A Class 2: £156 TOTAL DEDUCTIONS: week/month/year £156/£13.00/£3.00 Monthly assumed earnings (£569.23) minus deductions (£13) = £553.23 Monthly Minimum Income Floor Adams’ assumed monthly income from self-employment is set at £539 and the DWP use this figure to calculate the award. What happens next? If the DWP decide that you are GSE you will not have to look for or be available for other work in order to continue claiming Universal Credit. However, as explained above, you will have the Minimum Income Floor applied unless you are eligible for a Start-Up period. You can appeal a GSE decision.

If the DWP decide that you are not GSE, the MIF will not be applied; however you will usually have agreed to work related commitments in order to receive UC payments, such as work search. The DWP are obliged to consider giving you up to three months to look for your usual work, e.g. your usual performance area. If the DWP refuse to apply this provision, please get in touch with us for further advice. After this initial period, you will be required to widen your work search to include other areas (reg 97 (4) – (6), Universal Credit Regulations 2013).

Income and Expenses Whether you are gainfully self-employed or not, you will need to declare your self- employment income and expenditure during the monthly assessment period. You do this by uploading the information in your online UC journal.

“Permitted expenses” rules for UC are not the same as for tax. They are the expenses you incur during the monthly assessment period which are either:-

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 wholly and exclusively incurred for the purpose of the trade, profession or vocation Or  in the case of expenses that have been incurred for more than one purpose, an identifiable part or portion that has been wholly and exclusive incurred for the trade, profession or vocation

The following expenses are specifically excluded (reg 58, Universal Credit Regulations 2013):

 Unreasonably incurred expenses  Expenditure for non-depreciating assets (including property, shares or other assets held for investment purposes)  Repayment of capital taken out for the purposes of the trade, profession or vocation  Expenses for business entertainment  Capital allowances e.g. writing down allowances as claimed for tax purposes

There are standard fixed rate deductions within UC for cars, vans and other motor vehicles and for expenses relating to the use of home for your business. See http://revenuebenefits.org.uk/universal-credit/guidance/entitlement-to-uc/self- employment/calculating-income-from-self-employment/ You can only claim the costs that you actually incur in your monthly assessment period - for example, if you pay an annual subscription such as your Equity membership fee in one payment in the month of January, then you would claim that entire expense in that month, whereas if you pay by monthly direct debit you would include the monthly payment as an expense only.

Note: that if you are not viewed as gainfully self-employed then you will still need to declare self-employed earnings but your award will be based on your actual income and will not be subject to the Minimum Income Floor. In these circumstances you should still be allowed to deduct essential business expenditure from your “gross profit” figure.

Monthly declarations should be made by 14 days of the end of your assessment period otherwise your UC claim could be suspended. A statement of your award is then sent to you/put on account. If you disagree with the figures you should challenge them within a month of the date of the decision and seek further advice.

Employment (PAYE) earnings are usually sent to the DWP automatically by your employer via HMRC through the Real Time Information (RTI) system. If you are in any doubts as to whether the RTI system has been set up with your employer, you should contact the DWP as soon as possible to inform them of your earnings.

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Work related requirements If you are not gainfully self-employed you will also be expected to look for other work and to log your work search activities online on your ‘Universal Job Match account’ as part of your claimant commitment. You should be assigned a Work Coach and would be expected to share your information on work searches with that person. You may also have to attend work-focussed interviews or work preparation sessions which in the view of the DWP will make it easier for you to find work. All these activities together are known as the ‘work related requirements.’

Important note: as stated earlier, as an established performer you should be allowed a period of up to three months to look for your usual work i.e. performance work. After that performance work should be the main type of work you are looking for. If the DWP refuse to allow you to do that, please get in touch with us.

If you do not comply with your work related requirements, you may be sanctioned and have your benefits suspended. Note that sanctions carry the right of appeal so you should seek professional advice from a benefits advisor if this happens.

Disputing DWP decisions on your Universal Credit You can ask for a decision on your Universal Credit to be looked at again but you need to do so within one month of the date on the Decision Notice. This is called Mandatory Reconsideration (MR) request.

If you are not satisfied with the MR decision, you can appeal to the First Tier Social Security Appeal Tribunal using appeal form SSCS1 which can be found here http://hmctsformfinder.justice.gov.uk/HMCTS/GetForm.do?court_forms_id=3038. You must do this within one month of the date shown on the decision letter. If you ask for a written statement of reasons for the MR decision, this gives you an extra 14 days in which to appeal but this will only be granted where the DWP have not previously supplied written reasons which could be a matter of dispute. It is therefore to get your appeal in within the one month limit and request the reasons at the same time if you think they have not been supplied.

If you are seeking an MR or planning to appeal a DWP decision on your UC we strongly advise you to seek professional advice first from a welfare benefits advisor. If any of the advice in this briefing differs from advice given to you by the DWP, please contact us as soon as possible. As this is a new benefit, mistakes are often made by the department and it is important to seek specialist advice from advisers like ourselves in order to get legally correct advice.

When your UC claim is stopped In any month, if you’re monthly earnings exceed the maximum amount of UC that you are entitled to, your award is terminated.

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Reclaiming UC When reclaiming UC you are subject to the same claiming process and waiting period as when you initially claim (see above). However if you reclaim within 6 months of the termination of your previous claim, your old assessment period will be re-applied to your award in most cases.

In addition, if you have been assessed as having a limited capability for work or work related activity in your prior claim and you make another claim to UC within 6 months of it stopping, this should be re-applied.

If your previous claim was terminated on the basis of your earnings exceeding the maximum UC amount payable, you may find that an amount of 'surplus earnings' may be carried over to a new UC claim if you claim again within six months. If this applies to you, please contact Equity’s Tax and Welfare Rights Advice and Rights Helpline for further information and advice.

Note: this Briefing Sheet reflects our understanding of the law and procedure in relation to Universal Credit as at October 2019 but will be subject to change and updating.

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