Apply the UC minimum income floor to net earned income against a net threshold

changelog.d/uc-mif-net-floor.added.md

@@ -0,0 +1 @@
+Add the `gov.dwp.universal_credit.means_test.minimum_income_floor.self_employed_national_insurance` parameter and the `uc_minimum_income_floor_gross`, `uc_minimum_income_floor_income_tax`, `uc_minimum_income_floor_national_insurance` and `uc_individual_earned_income_before_mif` variables; `uc_minimum_income_floor` is now the net floor.

changelog.d/uc-mif-net-floor.fixed.md

@@ -0,0 +1 @@
+Apply the Universal Credit minimum income floor as the law sets it (UC Regs 2013 reg. 62): compare each self-employed claimant's earned income after their own tax, NI and pension contributions with the individual threshold converted to a net amount (reg. 62(4)) by deducting the income tax and Class 2 and Class 4 NI due on it, as DWP does, rather than the gross threshold less the tax on their actual profits; apply the couple rule of reg. 62(3); use the minimum wage for the person's age, never the apprenticeship rate (reg. 90(2)); apply the floor to claimants only, including those with a trading loss; and stop setting a trading loss against employed earnings (reg. 57(2)).

changelog.d/uc-mif-net-floor.removed.md

@@ -0,0 +1 @@
+Remove `uc_mif_capped_earned_income`, which applied a gross floor to gross earnings; use `uc_individual_earned_income`.

docs/book/programs/gov/dwp/universal-credit.ipynb

@@ -44,7 +44,7 @@
   {
    "cell_type": "markdown",
    "metadata": {},
-   "source": "## How PolicyEngine computes Universal Credit\n\nPolicyEngine computes Universal Credit at the benefit-unit level in three stages:\n\n1. **Maximum entitlement** (`uc_maximum_amount`): sum the elements the benunit qualifies for — `uc_standard_allowance`, `uc_child_element`, `uc_disability_elements`, `uc_carer_element`, `uc_housing_costs_element`, and `uc_childcare_element`.\n2. **Means test**: each person's earnings (`uc_individual_earned_income`) are net of their own relievable pension contributions and the income tax and National Insurance they pay on that employment or self-employment (UC Regulations 2013 regs 55(5) and 57(2)): `uc_income_tax_on_earnings` treats earnings as the lowest slice of the person's non-savings income, so tax on pensions, property, savings and dividends is never deducted, and one partner's tax never reduces the other's earnings. The maximum entitlement is then reduced by 55% (the `gov.dwp.universal_credit.means_test.reduction_rate` parameter) of the benunit's combined earnings above its work allowance (`uc_work_allowance`), and by all of its unearned income (`uc_unearned_income`), pound for pound. Unearned income is the list in `gov.dwp.universal_credit.means_test.income_definitions.unearned`: retirement pension income (State Pension and private pensions, UC Regulations 2013 regs 66(1)(a) and 67), Carer's Allowance, carer support payment (up to the Carer's Allowance rate, from November 2023), contribution-based JSA and ESA, maternity allowance, industrial injuries benefit, savings, dividend and property income, and the tariff income deemed from capital (reg 72), which replaces the actual yield of the capital it is charged on. Asset rules apply on top of this — capital above the lower threshold deems a tariff income, and capital above the upper threshold disqualifies the benunit entirely.\n3. **Benefit cap**: the post-means-test award (`universal_credit_pre_benefit_cap`) is finally reduced by `benefit_cap_reduction` to produce `universal_credit`. The benefit cap only applies to benunits without a benefit-cap exemption (working enough hours, having a qualifying disability benefit, etc.).\n\nThe take-up step is handled by the input variable `would_claim_uc`, which is populated stochastically when the dataset is built so that PolicyEngine's caseload aggregates match published DWP claimant numbers rather than the full eligible population.\n\nParameters live in `policyengine_uk/parameters/gov/dwp/universal_credit/` and the per-element formulas in `policyengine_uk/variables/gov/dwp/universal_credit/`."
+   "source": "## How PolicyEngine computes Universal Credit\n\nPolicyEngine computes Universal Credit at the benefit-unit level in three stages:\n\n1. **Maximum entitlement** (`uc_maximum_amount`): sum the elements the benunit qualifies for — `uc_standard_allowance`, `uc_child_element`, `uc_disability_elements`, `uc_carer_element`, `uc_housing_costs_element`, and `uc_childcare_element`.\n2. **Means test**: each person's earnings (`uc_individual_earned_income`) are net of their own relievable pension contributions and the income tax and National Insurance they pay on that employment or self-employment (UC Regulations 2013 regs 55(5) and 57(2)): `uc_income_tax_on_earnings` treats earnings as the lowest slice of the person's non-savings income, so tax on pensions, property, savings and dividends is never deducted, and one partner's tax never reduces the other's earnings. A claimant with a self-employment profit or loss outside a start-up period is subject to the minimum income floor (reg 62): when their earnings after those deductions are below `uc_minimum_income_floor`, they are treated as having that amount instead. The floor is the minimum wage for their age for 35 hours a week (reg 90(2)), less the income tax and the Class 2 and Class 4 National Insurance a self-employed person would pay on it (reg 62(4)(b) leaves this amount to the Secretary of State; this is the basis of DWP's guidance and figures, and setting the `gov.dwp.universal_credit.means_test.minimum_income_floor.self_employed_national_insurance` parameter to false deducts primary Class 1 instead). A member of a couple is lifted only while the couple's combined earnings are below the couple threshold, the sum of both partners' floors, and never above it (reg 62(3)). The maximum entitlement is then reduced by 55% (the `gov.dwp.universal_credit.means_test.reduction_rate` parameter) of the benunit's combined earnings above its work allowance (`uc_work_allowance`), and by all of its unearned income (`uc_unearned_income`), pound for pound. Unearned income is the list in `gov.dwp.universal_credit.means_test.income_definitions.unearned`: retirement pension income (State Pension and private pensions, UC Regulations 2013 regs 66(1)(a) and 67), Carer's Allowance, carer support payment (up to the Carer's Allowance rate, from November 2023), contribution-based JSA and ESA, maternity allowance, industrial injuries benefit, savings, dividend and property income, and the tariff income deemed from capital (reg 72), which replaces the actual yield of the capital it is charged on. Asset rules apply on top of this — capital above the lower threshold deems a tariff income, and capital above the upper threshold disqualifies the benunit entirely.\n3. **Benefit cap**: the post-means-test award (`universal_credit_pre_benefit_cap`) is finally reduced by `benefit_cap_reduction` to produce `universal_credit`. The benefit cap only applies to benunits without a benefit-cap exemption (working enough hours, having a qualifying disability benefit, etc.).\n\nThe take-up step is handled by the input variable `would_claim_uc`, which is populated stochastically when the dataset is built so that PolicyEngine's caseload aggregates match published DWP claimant numbers rather than the full eligible population.\n\nParameters live in `policyengine_uk/parameters/gov/dwp/universal_credit/` and the per-element formulas in `policyengine_uk/variables/gov/dwp/universal_credit/`."
   },
   {
    "cell_type": "code",

policyengine_uk/parameters/gov/dwp/universal_credit/means_test/minimum_income_floor/README.md

@@ -0,0 +1 @@
+# Minimum income floor

policyengine_uk/parameters/gov/dwp/universal_credit/means_test/minimum_income_floor/self_employed_national_insurance.yaml

@@ -0,0 +1,27 @@
+description: >-
+  Whether the amount for National Insurance that converts the Universal Credit
+  minimum income floor to a net amount is the Class 2 and Class 4 contributions
+  due on self-employed profits equal to the threshold, rather than the primary
+  Class 1 contributions due on pay equal to it. The regulations leave the amount
+  to the Secretary of State. DWP's 2017 guidance on applying the floor deducts
+  Class 2 and Class 4, and DWP's own figures match that basis (the ADM example of
+  946 a month in 2015-16, to the pound; a floor set on a claimant's award at
+  1,144.15 a month in 2019-20; and 1,642.72 a month that DWP supplied for
+  2025-26). DWP's quick guide describes the floor as what an employed person
+  would earn after tax and National Insurance, which false models instead.
+values:
+  2013-04-29: true
+metadata:
+  unit: bool
+  label: Universal Credit minimum income floor self-employed National Insurance
+  reference:
+    - title: The Universal Credit Regulations 2013 reg. 62(4)(b)
+      href: https://www.legislation.gov.uk/uksi/2013/376/regulation/62
+    - title: DWP, Applying the Minimum Income Floor, version 9 (3 April 2017, deposited paper DEP2017-0556)
+      href: https://data.parliament.uk/DepositedPapers/Files/DEP2017-0556/6_Applying_the_minimum_income_floor_V9.0.pdf
+    - title: DWP, Advice for Decision Making, chapter H4, H4079
+      href: https://www.gov.uk/government/publications/advice-for-decision-making-staff-guide
+    - title: "Griffiths and Wood, Going it alone: experiences of self-employed Universal Credit claimants, University of Bath IPR, July 2025, note 3 (a net floor of 1,642.72 supplied by DWP)"
+      href: https://www.bath.ac.uk/publications/going-it-alone-experiences-of-self-employed-universal-credit-claimants/attachments/going-it-alone-report.pdf
+    - title: "DWP, Universal Credit and self-employment: quick guide"
+      href: https://www.gov.uk/government/publications/universal-credit-for-the-self-employed/universal-credit-and-self-employment-quick-guide

policyengine_uk/tests/policy/baseline/finance/benefit/family/universal_credit/income/income_floor/uc_MIF_applies.yaml

@@ -32,3 +32,11 @@
     uc_is_in_startup_period: true
   output:
     uc_mif_applies: false
+
+- name: Self-employment loss (MIF applies)
+  period: 2026
+  absolute_error_margin: 0
+  input:
+    self_employment_income: -1
+  output:
+    uc_mif_applies: true