Research and analysis

Executive summary

Published 7 October 2024

Universal Credit (UC) is a single monthly benefit payment for people in or out of work. The in-work self-employed is a largely new claimant group for the Department for Work and Pensions (DWP) having been previously supported by HM Revenue and Customs (HMRC) through tax credits. Under the UC self-employment system, some payments are calculated using an assumed level of earnings called a Minimum Income Floor (MIF), which is calculated individually for each claimant. This study aimed to explore how self-employed UC claimants make decisions about work and how they understand and respond to their MIF. 

A qualitative approach was undertaken to this study. A total of 40 in-depth interviews were conducted with self-employed claimants by telephone, including 30 UC claimants who had a MIF applied to their claim and were earning above or below their MIF level, and 10 claimants where a MIF had previously been applied but was no longer. The sample also comprised a mix of claimant demographics, including age, gender, age of children, and health. 

The self-employed claimants who took part in this study were mixed in terms of sector, length of self-employment, and reasons for self-employment. Claimants fell into three groups in terms of their reasons for self-employment, which included ‘lifestyle’ for example, caring responsibilities, where claimants are self-employed to work around their personal circumstances; ‘entrepreneurs’ who want to grow a viable business from an interest or gap in the market; and ‘norm for sector’ where claimants are self-employed based on the sector they work in. Most claimants in the sample were self-employed due to their lifestyle.  

While awareness of the MIF was high, overall knowledge of Universal Credit rules, how the MIF worked in practice and the consequences of earnings falling below this was very limited. Overall, claimants were aware they had a “target” to meet, that their MIF was determined by a calculation of their expected hours of work and the National Minimum Wage, and that earnings were reported monthly. 

Claimants were more likely to understand what would happen to their UC claim if they earned above the MIF, but more confused about the consequences of earning below the MIF or if their earnings were to fluctuate above and below. This lack of awareness is likely to affect responses to the MIF. Claimants gained information on UC and the MIF from their work coach at the initial interview, but also through friends and family, internet searches and external organisations, such as Citizen’s Advice Bureau. The information received from DWP was described as ‘inconsistent’ and work coaches were thought to lack confidence in their explanation.   

Most claimants were open to receiving advice in relation to their business. Claimants can lack a clear idea of how to move forward with their work and look beyond their current circumstances or work choices. Claimants were keen for more support on running a business, growing a business (beyond simply increasing hours), managing tax affairs and budgeting, but wanted this to be delivered by individuals with experience of self-employment.  

Overall the MIF was perceived to have a limited effect on the behaviour of claimants who participated in this study. Lack of understanding of how the MIF worked and a focus on their work and personal circumstances meant that the MIF was rarely at the forefront of claimants’ minds. Claimants who fell consistently below the MIF were often self-employed due to their ‘lifestyle’ or they were ‘entrepreneurs’ just starting out in business. Importantly, claimants wanted to increase their earnings, but were mixed in terms of how likely they thought they were to be able to do this in the future. Fluctuating incomes were common for the self-employed and created difficulties for managing the MIF and other aspects of UC rules. 

There was evidence of the MIF helping to change behaviours and grow earnings. Examples were noted of claimants increasing the amount of time they worked (and therefore earnings) to meet or exceed their MIF level, and this was mainly noted by those earning above their MIF. In these cases, their MIF was useful in motivating and encouraging claimants to work a little longer if their monthly earnings seemed lower than usual. Where the MIF was motivating claimants to increase their earnings, they were aware of what their MIF level was, monitored their income and kept their MIF in mind throughout the process. In these cases, their MIF was also seen as achievable and claimants had the opportunity and ability to increase their earnings as needed. 

Several claimants were no longer claiming UC due to reasons such as a change of circumstances, earning above the UC threshold, or having assessed the MIF to be unattainable and signed off as a result. Subsequent outcomes in relation to work or income were not explored in this study.