Universal Credit has been introduced to replace the following benefits:
- Housing benefit
- Jobseekers allowance (income-based)
- Employment and support allowance (income-related)
- Income support
- Child tax credits
- Working tax credits
Universal Credit is being rolled out in stages as a full digital service. You can check whether it is available in your area here.
You can find out whether you are entitled to Universal Credit here.
Note: if you are a newly registered childminder you will have to show you are earning a minimum amount after a year to qualify for Universal Credit. This is a concern for many childminders if business is slow to start – so you need to do your Business Planning (SWOT analysis and local childcare sufficiency audit) carefully to make sure your business will be profitable quickly. The theory behind this rule is that the welfare system should not subsidise loss-making businesses indefinitely.
A spokesman for the Department of Work and Pensions said in a recent article in The Independent:
"After the initial year, gainfully self-employed people are treated as if they are earning the minimum wage. If they are not and they want to maintain the same level of income, they will be expected to increase their earnings rather than relying on their UC payment.”
As part of the move to Universal Credit you will have to show you are ‘gainfully self-employed’ and earning a minimum income of equivalent of 35 hours a week at the National Minimum Wage. Do you remember those checks for tax credits a few years ago when they wanted to know the ins and outs of your bank balance..? It appears they were the starting point for determining whether you are ‘gainfully self-employed’.
The assessor will be looking to check that your self-employment is regular, organised and developed. It must be your main job and you must make a profit. They will want to see evidence of contracts, invoices, receipts, accounts etc – under GDPR your legal basis for sharing these will be ‘legal obligation’ (you will not need to use the legal basis of ‘consent’).
More information here.
A big change for Universal Credit is that, if things stay as they are at the moment, you will need to report your earnings, (less income tax, permitted expenses, National Insurance (Class 2* and Class 4) and any pension contributions qualifying for tax relief) to the Department for Work and Pensions (DWP) monthly to keep claiming the Credit. If you do not input your income monthly you will lose your Universal Credit because your monthly payment is assessed on your previous months’ income. There is a very tight 7 day reporting deadline as well so you will need to be organised and ready for the changes – tips to follow.
There is more advice about how to manage your income reporting – especially if it changes month by month – here.
Money management advice includes:
- Put money to one side if you have a high income month and budget for a quieter month.
- Speak to your Local Authority and ask them when they are going to pay funding monthly because when Local Authorities pay termly, the big increase in income will affect your Universal Credit payment. This is really important because of the surplus earnings rule*
- Change any annual payments (insurance for example) to monthly so your outgoings are evened out through the year.
- Decrease your recurring monthly expenses as much as possible – go through your outgoings and decide what is important and what can be reduced.
- Charge for parent holidays (we charge half but some childminders charge full fee) to keep your monthly income as stable as possible.
- If you have term-time only children, work out their fees quarterly or annually rather than monthly so you can show a regular monthly income from them.
- Put your childminding income and expenses through a separate bank account (personal account is fine – it doesn’t need to be a business account) so you can keep a close eye on your budget and spot any fluctuations.
- Work out how much you pay for services such as gas, electricity, council tax etc monthly – they will need to show as monthly outgoings in your bank account if you are audited.
- Know your statutory expenses so you can work out how much you will need to deduct for, for example:
- Income tax – personal allowance £11,500 from April 2018 – 19 – pay 20% on everything above this amount…
- National Insurance Class 2 – allowance of £5,965 from April 2018 – 19 – pay £2.80/week after this amount.
- National Insurance Class 4 – allowance of £8,424 from April 2018 – 19 – pay 9% on everything above this amount…
- Pension contributions qualifying for tax relief – varies.
*Surplus earnings rule explained here.
This type of forward planning – do it now – don’t put it off – make it easier for yourself – will also help you to calculate your monthly income ready for monthly Universal Credit reporting.
Note: I am reading information on some websites that there are different rules for preparing accounts for Universal Credit and normal childminder accounts for your self-assessment tax return – your Universal Credits advisor will be able to give you information about this.