The Minimum Income Floor for Self-Employed Claimants

If you are self-employed and claim Universal Credit, the Department for Work and Pensions does not always take your earnings at face value. Once you have been trading for a while, it can assume you earn a set amount each month, called the minimum income floor, even if your actual takings are far lower. The floor is based on what an employed person on minimum wage would expect to earn in similar circumstances¹.

In practice that usually means 35 hours a week at the national minimum wage for your age, with an amount taken off for income tax and National Insurance². If your real earnings are below that figure, the assumed figure is used to work out your Universal Credit instead, which reduces your payment. If you earn more, your actual earnings are used¹.

The floor does not apply straight away. A 12-month start-up period usually runs first, during which your payment is based on what you really earn¹. There are also exemptions for illness, pregnancy and caring responsibilities, and separate minimum income floor rules exist in some council tax support schemes.

What the minimum income floor is

The minimum income floor is a rule that lets the government assume a certain level of self-employed profit, even if you do not earn that amount⁴. It is the equivalent of someone working full time, taken as 35 hours per week unless you have other responsibilities, on the national minimum wage for your age group⁵.

The figure is not a flat national number. It is your individual earnings threshold, which in most cases is the appropriate national minimum or living wage rate for your age multiplied by 35 hours, though the hours may be reduced because of caring responsibilities or health issues². An amount is then taken away to reflect income tax and National Insurance, because the comparison is with what an employed person would take home⁶.

The floor is also tied to your claimant commitment. It is calculated based on what your claimant commitment would have been if you were not self-employed, so the hours and work-related requirements recorded on your claim feed into the figure⁷.

Where the floor applies, you are treated as if you are earning a certain amount, and that amount is the minimum income floor⁸. The effect is that self-employed people are assessed differently from employees, and may be worse off on Universal Credit as a result⁹.

Who it applies to

The floor only applies if you are in the all work-related requirements group¹⁰. It applies to self-employed claimants in that group whose earned income is lower than their minimum income floor amount, unless they are in a grace period².

The legislation sets this out in similar terms. Regulation 62 applies to a claimant who is in gainful self-employment and who would, apart from that regulation, fall within the group of claimants subject to all work-related requirements¹¹. A claimant is in gainful self-employment for these purposes under regulation 64⁸.

Being gainfully self-employed is a test, not a label you choose. The DWP looks at whether your self-employed work is your main job or main source of income, and whether it is organised, developed, regular and expected to make a profit¹. If it is a sideline alongside employment, or a hobby that is not expected to make a profit, the floor rules generally do not bite in the same way.

Some claimants are not subject to work-related requirements at all, and so fall outside the floor. These include claimants who have limited capability for both work and work-related activity owing to a physical or mental condition, responsible carers of a child under the age of one, and claimants with regular and substantial caring responsibilities for a severely disabled person¹².

If you are self-employed, you will be in the non-work-related activity group if the minimum income floor applies to you or you earn more than your minimum income floor¹³.

Directors of small limited companies can also be affected, because directors are treated as self-employed for Universal Credit purposes¹⁴.

The 12-month start-up period before the floor applies

A start-up period is up to 12 months, when you can focus on growing your business¹. During it, you will not have to look for, or be available for, other work, and your payment will be calculated using your actual monthly earnings and not the minimum income floor¹⁵.

The start-up period is a period of 12 months and applies from the beginning of the assessment period in which the Secretary of State determines that it applies¹⁵. If you are already self-employed when you start your Universal Credit claim, the 12 months runs from your UC start date². If you move to Universal Credit and have been gainfully self-employed for less than 12 months, you will be considered to be in a start-up period; if you have been gainfully self-employed for a minimum of 12 months, the minimum income floor will apply¹⁴.

A second start-up period is possible only in narrow circumstances. A start-up period applies only where the minimum income floor has not previously applied to you in relation to the trade, profession or vocation which is currently your main employment, whether in relation to the current award or a previous award¹⁵. The official guidance puts the same rule more simply: a further start-up period can apply if it is more than five years since your last one and your new self-employed business is for a different trade, profession or vocation¹⁵.

For new businesses, the DWP will use your actual earnings in the first 12 months to help you increase your income, rather than using the minimum income floor¹⁶.

How the floor changes your Universal Credit payment

The rule is a comparison. Whichever amount is higher, the minimum income floor or your total income for the monthly reporting period, will be used to calculate your Universal Credit payment, unless you are in a start-up period¹.

So if you earn more than the floor, your Universal Credit amount is based on your actual earnings¹. If you earn less, the minimum income floor is used instead of your actual earnings, less an amount for income tax and National Insurance⁶. The same rule applies to self-employed claimants in the all work-related requirements group: the floor is used instead of actual earnings when calculating the award, again less an amount to reflect income tax and National Insurance¹⁰.

The practical effect can be large. In one worked example from 2020, a renting couple with two children would have seen net income drop to £360 per week, or £18,700 per year, if self-employed earnings fell close to zero with the floor in place. With the floor scrapped, the same household's net income would only fall to £520 per week, or £27,200¹⁷. Those figures are from a specific period and a specific household, but they show the size of the gap the floor can create.

Your Universal Credit will be calculated using the amount the government expects you to earn each month, which is the minimum income floor¹⁸. The jargon buster on the Turn2us site describes it plainly as the Universal Credit rule for self-employed people earning below minimum wage¹⁹.

Has the minimum income floor been scrapped?

No. The floor was paused during the pandemic and restarted for self-employed people from 1 August 2021³. Independent guidance confirms the same restart date²⁰.

One 2020 policy paper from the Resolution Foundation described the government as having scrapped the minimum income floor²¹. That statement referred to the temporary pandemic measures in place at the time, not to a permanent abolition, and the floor has applied again since August 2021.

If you see older articles saying the floor has gone, check the date. The current position is that it applies to gainfully self-employed claimants who are past any start-up period and not exempt.

Exemptions: health, pregnancy and caring responsibilities

Several groups are exempt from the floor. You are within 12 months of being self-employed, too sick to work, or have a long-term illness²². People with limited capability for work, whether LCW or LCWRA, should be exempt from the minimum income floor²².

The floor also does not apply if you are at least 29 weeks pregnant, have had a baby in the last 15 weeks, or are the main carer of a child under 3²³.

These exemptions matter because the floor can otherwise assume earnings you are not able to generate. If you think an exemption applies to you and it has not been reflected in your award, the decision can be challenged through a mandatory reconsideration.

Minimum income floors in Council Tax Support

Separately from Universal Credit, some local authorities have introduced a minimum income floor for self-employed claimants as part of their Council Tax Support or Reduction schemes²⁰. The rules vary from scheme to scheme, including the exemptions, the hours used and the length of any grace period².

That means two claimants in different council areas, with identical self-employed earnings, can be treated differently for council tax support. If you claim Council Tax Reduction, it is worth checking your own council's scheme rules rather than assuming the Universal Credit position applies.

If you are on a low income, you may be eligible for Universal Credit and could get help with housing costs, or Housing Benefit and Council Tax Reduction from your local council²⁴.

Does the minimum income floor apply in Northern Ireland?

Yes. Universal Credit is devolved in Northern Ireland and the rules are set out in separate legislation, but the principle is the same. Under the Universal Credit Regulations (Northern Ireland) 2016, a claimant in gainful self-employment whose earned income is below their individual threshold is treated as having earned income equal to that threshold²⁵.

The Northern Ireland regulations also set a minimum amount used in the calculation, which is one penny²⁵. Official guidance for Northern Ireland explains how claiming Universal Credit works when you are self-employed¹⁵.

The minimum income floor applies to the self-employed only²⁶. If you move between Northern Ireland and Great Britain, the same concept follows you, though the legislation and the department administering it differ.

Where to get help

If you are self-employed and claiming Universal Credit, the figures that matter most are your individual earnings threshold, whether you are in a start-up period, and whether any exemption applies. Those three things decide whether the floor affects your payment at all.

Free and impartial help is available. Checking what you are entitled to covers free calculators and advisers, and Challenging a decision explains mandatory reconsideration if you think the floor has been applied wrongly. Work-related requirements and your claimant commitment explains how the hours in your commitment are set, since those feed into the floor.

If you are moving from legacy benefits, Moving to Universal Credit sets out what changes, and Reporting a change of circumstances explains what you need to tell the DWP about your earnings.