Universal Credit penalty for self-employed, says Citizens Advice

Self-employed workers on Universal Credit could receive far less than employees earning the same amount, a charity has claimed.

Citizens Advice claimed that a bad month of self-employment income would not be rescued by the new benefit.

It suggested a self-employed worker earning £9,750 a year would be £630 worse off under Universal Credit than an employee in the same circumstances.

The government said the system encouraged them to grow their business.

Universal credit is a new benefit for working-age people, replacing six benefits and merging them into one payment. They include income support, income-based jobseeker's allowance, income-related employment and support allowance, housing benefit, child tax credit, and working tax credit.

It was designed to make claiming benefits simpler.

However, Citizens Advice said it had unveiled a loophole that meant a self-employed claimant who earned less than the national minimum wage one month would not have the difference made up by their Universal Credit payment.

In contrast, if their monthly earnings went over the minimum wage level, their benefit payment will be reduced accordingly.

The charity said this was unfair and risked causing financial hardship, as self-employed workers often earned different amounts from one month to the next.

It cites the case of one family that, in order to get more money through Universal Credit, saw the father having to give up his computing business and stop work altogether, while the mother cut short her maternity leave to return to work.

Gillian Guy, chief executive of Citizens Advice, said Universal Credit was still better suited to those with regular jobs despite a rapid rise in self-employment.

"The government has shown it is prepared to act to improve Universal Credit as new facts come to light - an approach we strongly support," she said.

"It now needs to look again at the design of the benefit to ensure self-employed and agency workers aren't left at a financial disadvantage."

A Department for Work and Pensions spokesman said: "The Minimum Income Floor encourages people who aren't earning enough through self-employment to grow their business or take on more hours in other employment.

"Universal Credit is a flexible benefit that supports people in and out of work, those on low incomes and the self-employed, and it is succeeding."