Why universal credit process is not working for farmers
© Tim Scrivener Farming families who are being moved from working tax credits to universal credit (UC) are reporting the process is a “nightmare” because the rules for self-employed claimants don’t reflect how the farming industry operates.
The Department for Work and Pensions (DWP) started the transition away from six old-style “legacy benefits” to UC in 2019, although the process slowed during the Covid pandemic.
However, the DWP now aims to migrate everyone across to the UC system by the end of this year.
See also: Introduction of Universal Credit will punish self-employed farmers
As a result, migration notices are being sent out to families across the country, which explain their current benefits are ending and setting a date by which people should submit their first UC claim.
Harriet White, who lives with her husband and three children in Lincolnshire, says the system being rolled out is not fit for purpose when it comes to farming businesses.
A fundamental problem is that it does not reflect the fact that, like many other self-employed people, farmers’ incomes can fluctuate widely depending on the season, and there will be a number of months where expenses will be incurred but there will be virtually no income until grain or stock is sold.
As UC is calculated based on monthly income and expenditure, in some months claimants might qualify for a payment, but in others they will not.
Minimum income floor
Compounding the problem is the application of the minimum income floor (MIF), which assumes everyone has earned the equivalent of the national living wage or national minimum wage each month.
This means even in months where there is virtually no income, the DWP will start from the basis that the claimant brought home the equivalent of the minimum wage.
Harriet says anyone self-employed is also being asked to provide monthly figures to support their claim, which is unfeasible for many farmers because of the paperwork involved.
For claimants who are part of a partnership, this may involve sharing the bank statements for the farm business, with any profits to be divided by the number of partners, or in accordance with any written partnership agreement.
“We are not going to be entitled to claim on the new system without a lot of impossible paperwork,” says Harriet.
“The stress and anxiety of the whole migration is real for so many of us and the worry going forward without the relief of tax credits is unbearable.”
Her family has previously been able to claim about £600/month in tax credits, but she fears that because of the challenges they are facing, they may end up withdrawing their claim.
“To us, that amount of money is a massive difference at the end of the month.
“If we were still able to claim tax credits or submit a UC claim on a yearly basis instead of a monthly basis, none of this would be an issue,” she says.
Facebook group support
A Facebook group called Universal Credit for Farming Families has been set up for people to share their experiences and swap tips on making an application.
There are already 750 members and new people are joining every day because they are so confused and worried about the application process.
Some are reporting that when they and their partners have been called into meetings with a DWP “work coach”, it has been suggested they get another job because they earn less than the minimum wage.
This means their job is seen as a hobby, rather than a viable business.
Some have withdrawn their claims because the process is proving so difficult and distressing.
Harriet urges those affected to contact their MPs to raise the issue.
One of the key tips being shared by group members is to wait until just before the deadline to make their UC application, as tax credits will be stopped once the UC claim has been registered.
Rachel Coates, tax manager at accountant Dodd & Co, says everyone is on a learning curve about the migration process.
“The letters started to arrive in December without much warning.
“They set a strict deadline by which the applicant has to apply for UC – but the date is different for everyone.
“And if you don’t apply by this deadline, you miss out on the transitional protectional which is on offer for anyone migrating across.”
The transitional protection means the usual savings cap of £16,000 will not apply for the first 12 months and there should be a top-up payment if the UC payment is lower than what was available through tax credits (see “Universal Credit – the basics”).
Universal credit: the basics
What is it?
Universal credit is a payment to help with living costs for people who are on a low income, out of work or unable to work.
It was first introduced on a limited basis in 2013 with the aim of being rolled out as a replacement for working tax credits, child tax credit, housing benefit, income support, jobseeker’s allowance (JSA) and employment and support allowance (ESA).
Who is eligible?
Employed or self-employed people on a low income may be eligible for UC as long as they are over 18, but below retirement age and have less than £16,000 in money, savings or investments.
Where people are being migrated from tax credits for the first 12 months, it will be possible to make a UC claim even if they have money, savings and investments of more than £16,000.
However, after 12 months, normal eligibility rules will apply.
How does it work?
Claimants have to report the payments into and out of their business in each monthly assessment period.
This includes the total amount the business received set against expenses, taxes and national insurance.
If a claimant is in a partnership, they will need to show the profit and loss for the whole farm, with their share then being attributed to them.
Claimants are also expected to be able to show they are “gainfully self-employed”, which means they need to show that self-employment is their main source of income, the work is organised, regular, there is a business plan and they expect to make a profit.
Where a claimant cannot show all these things, it may be suggested that they have to look for other work if they want to claim UC.
How is the payment calculated?
The payment is based on the earnings reported at the end of each monthly assessment period.
However, there is an assumed level of earnings, called a minimum income floor.
This is what an employed person on minimum wage would expect to earn in similar circumstances, working a 35-hour week at the national minimum wage.
If someone earns below this level in any given month, they are treated as if they had earned the minimum income floor, regardless of their actual earnings.
If a farmer earns more than this, the UC amount is based on actual earnings.
The DWP has said for claimants who are migrated from legacy benefits, it will make up the difference if the UC entitlement is less than the previous tax credits or benefits.
What is available?
UC payments start with a monthly standard allowance.
For example, an eligible single person under 25 is entitled to £292.11 a month, while a couple aged over 25 get 578.82 together as a standard allowance.
Additional sums are available for children, depending on age and whether they are in eligible education or training and starting at 315 a month for those born before 6 April 2017.
There are also top-up payments for children with disabilities, and working parents can claim back up to 85% of childcare costs.
Rachel says her clients who are going through the process find providing the required information is demanding.
“I know of one client who has had at least two interviews at the local job centre and has had to take in documentation such as accounts, bank statements and proof of the nature of their business.
“Originally, they were asked to provide one month’s income details for the period prior to the new application, which we pulled from QuickBooks software.
“However, a week or two later, the work coach came back to say they wanted a full year’s individual accounts.”
Providing this level of detail is challenging as there has never been a requirement for people to keep monthly income and expenditure accounts, says Rachel.
“I don’t think the system is set up to appreciate the volatility of the farming world and how it all works.”
Warnings ignored
One of the biggest frustrations of the current situation is that the government was warned six years ago that the universal credit (UC) regime would not work for the farming industry.
The NFU gave evidence to a Work and Pensions Select Committee in 2018 that highlighted its concerns over the application of the minimum income floor.
In its final report, the select committee backed the union’s standpoint, agreeing that it would penalise anyone, such as farmers, with a fluctuating income.
“Farmers’ payment schedules, for example, are dictated by the seasons and other events, such as one-off bulk sales of livestock,” said the report.
“Sole traders invoicing on a job-by-job basis may find those jobs take longer than a month, or a late payment can cause variation.
“But these factors are far from reliable indicators of the viability of a business. Expenses can be similarly volatile.”
The discrimination against self-employed UC claimants was highlighted in a House of Lords Economic Affairs Committee report in 2020, which stated:
“Self-employed claimants who have fluctuating earnings, seasonal patterns, and varying costs and expenses suffer disproportionately from the minimum income floor.
“The DWP must address this problem to ensure adequate and fair support for those in disparate forms of self-employment.”