Self-employment: Minimum income floor

How the MIF works
Problems with the MIF
Exceptions to the MIF

How the MIF works

The amount of the MIF is, very broadly, equivalent to the statutory hourly pay-rate  for each hour that the claimant is expected to work – usually 35 hours a week. Initially, this meant the relevant rate of national minimum wage but, from April 2016, this is the relevant national minimum/living wage hourly rate relating to the age of the claimant. From that is deducted a notional amount to reflect the income tax and national insurance for which the claimant would be liable if they had earned income of that amount. Note however that there is currently no deduction allowed from the MIF for pension contributions meaning that those who are subject to the MIF in reality will not get a true deduction for their pension contributions as their employed counterparts will.

Example

Jack is a 30 year old window cleaner who works full time in his trade. His individual earnings threshold (ie the minimum wage for the number of hours the claimant is expected to work) is based on the national minimum wage of £7.20 an hour for a 35 hour week:

£7.20 x 35 = £252.00 per week

His minimum income floor for any assessment period, using current figures, should therefore be:

(£252.00 x 52)/12  = £1,092.00 minus notional tax and NI (say £86) = £1,006.00

Where a claimant is a member of a couple, and the claimant’s gross profit for an assessment period is lower than the MIF, then the MIF only applies to the extent that the earnings of the couple taken together do not amount to the couple’s combined earnings threshold. The earnings threshold, broadly, is the number of hours both members of the couple are expected to work times the national minimum wage. Where the couple’s earnings exceed the couple’s earnings threshold, the MIF for the self-employed partner is reduced or eliminated accordingly.

Example

Jack’s self-employed earnings for assessment period A are £600. His wife Jill is employed full-time in a bank and earns £15,000 a year (say, net earnings of £1,113.93 a month). The combined earnings threshold of the couple for a month is, say, £2,012.00 (35 hours a week each at the NMW of £7.20 an hour, less tax and NI)

Their actual combined earnings are £600 + £1,113.93 = £1,713.93

Applying Jack’s MIF of £1,006.00, their combined earnings for the month would be £1,006.00 + £1,113.93 = £2,119.93, which exceeds their combined earnings threshold by £2,119.93 - £2012.00 = £107.93.

Jack’s MIF is therefore reduced as follows: £1,006.00 - £107.93 = £898.07

Problems with the MIF

The MIF, and other aspects of the way self-employed earnings are calculated for UC, potentially present several problems for those who are starting out in business.

Exceptions to the MIF

There are three situations in which the MIF does not apply at all:

More information about the Minimum income floor, together with examples, can be found in ADM Chapter H4060.

Updated 6 September 2016