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Self-employed childcare providers risk losing Universal Credit payments

By Rachel Lawler
boy playing blocks childcare
Early years providers who are registered as being self-employed or sole-traders risk losing payments of Universal Credit as a result of offering funded childcare places.
The Alliance has warned that the Department for Work and Pensions (DWP) does not currently make a distinction between direct income from parent fees, which are usually spread across the year, and larger payments of funding, sometimes made on a termly basis to providers.
Universal Credit payments
This means that when assessing eligibility for Universal Credit, a provider may see their total “income” pushed over the threshold for recieing payments during the month that their funding is paid to them.
The provider may then see their Universal Credit payments either reduced or stopped altogether – despite the fact that the funding needs to be spent on the provision of childcare for the duration of the term.
The DWP confirmed to the Alliance that early years funding is “regarded as part of the business’ income and therefore treated exactly the same as the fees paid by parents (any customers/service users) to the childcare provider”.
Self-employed providers
William Towgood, owner of Bishopstoke Pre-school in Eastleigh, Hampshire, raised the issue last year with the Alliance and the DWP has only now responded to the Alliance’s queries.
Towgood receives payments for early years funding three times a year and, when registered as a sole trader, he would lose his Universal Credit payments for those months.
He has since registered his pre-school as a limited company, which means that he is treated as an employee and the funding is treated as a separate business income.
The DWP has not advised that it has any plans to review the way that Universal Credit applies to self-employed providers who receive early years funding.
Struggling sector
Neil Leitch, chief executive of the Alliance, commented: “This is a truly ridiculous situation: the government is well aware that termly funding has to pay for the provision of care and education across the whole term.
“Why on earth, then, is the DWP treating such payments as if they are personal income that might be spent in full within the month?
“At a time when so many providers are struggling to stay afloat as a result of the government underfunding, the prospect of some being financially disadvantaged even further as a result of the DWP’s inflexible approach to Universal Credit payments is incredibly concerning.”
William Towgood, added: “Universal Credit adds to the stress of [being a] sole trader in the early years, on top of frozen funding, pension contributions, minimum wage and rising costs.”
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