Model Universal Credit reg 77 for owner-managers of a company

[MaxGhenis]

Fixes #1964. Part of #1948.

Summary

This PR models Universal Credit regulation 77, "Company analogous to a partnership or one person business" (UC Regs 2013; UC Regs (NI) 2016, same number). It applies to a person who stands in a position analogous to a sole owner or partner of a company carrying on a trade or a property business. For that person:

• Earnings. A trading company's income, or their share of it, is their self-employed earnings. It is on top of any pay they draw as its director or employee (77(3)(b), 77(4)). A loss counts as nil (reg 57(2)). The earnings count towards the benefit cap earnings exemption, as other earned income does (reg 82).
• Minimum income floor. If the trade is their main employment they are treated as gainfully self-employed, so the floor applies (77(3)(c)).
• Capital. The value of their shares is disregarded. They are treated as holding the company's capital, or their share of it, less assets used wholly and exclusively for a trade while they work in it (77(2), 77(3)(a)).
• Exclusion. None of this applies where their income from the company is employed earnings under the intermediaries (IR35) or managed service company rules, as 77(5) stood at the time (77(5), SI 2018/1129).

Every new input defaults to "no such company", so no dataset changes. On the Enhanced FRS the branch is bit-identical to main (below).

#1948 asked whether its six-figure-dividend UC units are owner-managers under reg 77. The survey says they are not, and the dividends are an imputation artefact. That fix is PolicyEngine/policyengine-uk-data#498; see "What this means for #1948".

The law

UC Regs 2013 reg 77, verbatim from legislation.gov.uk (revised text valid 2026-07-16, no outstanding effects):

(1) Where a person stands in a position analogous to that of a sole owner or partner in relation to a company which is carrying on a trade or a property business, the person is to be treated, for the purposes of this Part, as the sole owner or partner.
(2) Where paragraph (1) applies, the person is to be treated, subject to paragraph (3)(a), as possessing an amount of capital equal to the value, or the person's share of the value, of the capital of the company and the value of the person's holding in the company is to be disregarded.
(3) Where paragraph (1) applies in relation to a company which is carrying on a trade— (a) any assets of the company that are used wholly and exclusively for the purposes of the trade are to be disregarded from the person's capital while they are engaged in activities in the course of that trade; (b) the income of the company or the person's share of that income is to be treated as the person's income and calculated in the manner set out in regulation 57 as if it were self-employed earnings; and (c) where the person's activities in the course of the trade are their main employment, the person is to be treated as if they were in gainful self-employment and, accordingly, regulation 62 (minimum income floor) applies.
(4) Any self-employed earnings which the person is treated as having by virtue of paragraph (3)(b) are in addition to any employed earnings the person receives as a director or employee of the company.
(5) This regulation does not apply where the person derives income from the company that is employed earnings by virtue of Chapter 8 (workers under arrangements made by intermediaries), Chapter 9 (managed service companies) or Chapter 10 (workers' services provided through intermediaries) of Part 2 of ITEPA and that income is derived from activities that are the person's main employment.

Until 27 November 2018, 77(5) read "...Chapter 8 ... or Chapter 9 ... of Part 2 of ITEPA", with no Chapter 10 and no main-employment condition (point-in-time texts 2013-04-29 and 2014-11-26; SI 2018/1129 reg 3(5)). The model dates this with two parameters.

The regulation is mandatory. DWP guidance treats "analogous" as a question of fact:

• like a sole owner: total influence over day-to-day running, for example owning 99% of the shares;
• like a partner: a small number of shareholders and meaningful influence over the running of the company.

A shareholder in a widely held company is an investor (ADM H4362-H4364, H1877-H1879, citing R(IS) 8/92 and 13/93 as reported in CA v Hastings BC [2022] UKUT 57 (AAC)). The only Upper Tribunal decision found applying UC reg 77, SSWP v Faghy (UA-2026-000266-USTA, 27 August 2026), accepted the Secretary of State's ground that a property business gets no 77(3)(a) disregard. It was an unopposed paper decision, so this is not the tribunal's own reasoned construction. This model does the same.

Where DWP guidance and the regulation differ, the model follows the regulation.

• ADM H4372 disregards all of the treated company capital while the person works in the business. The regulation disregards only assets used wholly and exclusively for the trade. H1880 also paraphrases that test as "wholly or mainly".
• ADM H4375 compares only the company income with the floor. Reg 62(2) compares the claimant's total earned income, and this is what uc_mif_capped_earned_income already does.
• ADM H1892 takes the company's capital as its net value (assets less liabilities). That is how owned_company_capital is documented.

Company income is before corporation tax. Reg 57(2) step 3 deducts only income tax and NICs paid by the person. Neither the regulations nor ADM H1/H3/H4/H5 provide for deducting corporation tax, so owned_company_income_share is documented as the reg-57 amount before it.

What changes

Inputs, all under variables/input/owned_company/, per person, each defaulting to no company:

• stands_as_sole_owner_or_partner_of_company
• owned_company_carries_on_trade
• owned_company_carries_on_property_business
• owned_company_intermediary_earnings_chapter (enum: none, or ITEPA Part 2 Chapter 8/9/10)
• owned_company_intermediary_earnings_from_main_employment
• owned_company_income_share
• owned_company_is_main_employment
• is_engaged_in_owned_company_trade
• owned_company_capital
• owned_company_trade_assets
• owned_company_holding_value

UC variables (gov/dwp/universal_credit/company/):

• uc_company_intermediary_exclusion_applies (77(5), dated)
• uc_company_owner_treatment_applies (77(1), (5))
• uc_company_self_employed_earnings (77(3)(b))
• uc_company_gainful_self_employment (77(3)(c))
• uc_company_capital (77(2), (3)(a), clamped at zero)
• uc_company_holding_disregard (77(2))

Parameters: gov.dwp.universal_credit.company_owner.intermediary_exclusion.{chapters, requires_main_employment}.

Wiring:

• uc_mif_capped_earned_income adds the company earnings to the person's earned income. Deduct only each person's own tax and NI on earnings from UC earned income #1949's uc_individual_earned_income reads this variable, so either version of the earned-income formula picks them up.
• uc_mif_applies adds the 77(3)(c) route, still switched off in a start-up period (reg 62(5)).
• is_benefit_cap_exempt_earnings adds the company earnings to the earnings test. Reg 82(4) excludes only income deemed by the floor, so the floor itself is not added.
• uc_assessable_capital adds the company capital of the claimant and partner (is_uc_claimant, following main's rule that a dependant's capital is not the claimant's) and removes disregarded holdings.
  • Unreported benefit units. The holding leaves the household capital pool before the pool is shared out among claimants and partners (new household_uc_unreported_company_holdings), so no unit counts any part of a disregarded holding.
  • Units reporting their own capital. The claimant and partner's holdings come off uc_reported_capital.
  • Floor at zero. Neither subtraction goes below zero, so a holding cannot reduce other capital.
• That capital also reaches the legacy-style local council tax reduction schemes, which read uc_assessable_capital for households with a UC award. This is intended: those schemes take UC's capital figure.
• A person whose main employment is the company's trade counts as engaged in it for the 77(3)(a) trade-asset disregard.

Dividends are left alone. A shareholder's dividends are not UC unearned income under reg 66(1) at any capital level; #1950 takes them out of uc_unearned_income. Before it merged, main still counted dividends as unearned income when tariff income did not apply. So a household calculation that sets these inputs and also enters that person's dividends would count the company's income twice; owned_company_income_share's documentation says so. #1950 has now merged (main is merged into this branch), so on current main the double count cannot arise.

Invariants (stated and tested)

test_uc_company_owner_properties.py checks these with Hypothesis on generated benefit units: singles and couples, 0-2 children, pay around the floor, self-employment profit, small savings and corporate_wealth, start-up status, and company facts including losses.

1. Inert. When the person is not a company's sole owner or partner, or 77(5) applies, or the company carries on neither a trade nor a property business, no company fact changes universal_credit, uc_assessable_capital, uc_earned_income, uc_mif_capped_earned_income or uc_mif_applies.
2. Capital identity. uc_assessable_capital = max(0, capital without the rule − Σ owners' holdings) + Σ owners' max(0, company capital − trade assets if trade and engaged or main employment).
3. Conservation. In a household of two benefit units, the units' assessable capital sums to max(0, household capital − Σ holdings) + Σ company capital.
4. Earnings identity. Without the floor, earned income = pay + self-employment profit + max(0, company income share) (trading company only). With the floor, earned income = max(that, floor).
5. Floor. A trading-company owner whose main employment it is, and who is not in a start-up period, has earned income of at least the floor. A person in a start-up period never has the floor applied.
6. Monotone. UC is non-increasing in the company income share and in the company's capital, and non-decreasing in the disregarded holding. Extra company capital that is itself a disregarded trade asset changes nothing once the owner works in the trade.
7. Property companies. The income share and the main-employment flag never change UC or earned income for a property-only company.

How hard the properties are exercised. There are 10 examples per property, each with 1-4 benefit units. The strategies make most adults owners and keep capital mostly under the limit. In 1,759 sampled adults:

Branch	Share of adults
Rule applies	54%
Floor through 77(3)(c)	12%
Trade-asset disregard active	14%
Company loss	12%
Holding larger than the household's capital	11%
77(5) exclusion	17%

98% of units stay under £16,000.

Mutation check. I reinstated each defect the review found, one at a time:

• dropping the loss floor fails the earnings identity;
• subtracting the holding after the household pool is shared fails the capital identity and conservation.

test_uc_company_owner_axiom_parity.py is a golden-case mirror of the independent Axiom encoding, TheAxiomFoundation/rulespec-uk uk/regulations/uksi/2013/376/77.yaml. It copies the four cases of its 77.test.yaml (commit 0644db8) and maps Axiom's inputs one to one (table below). It checks:

• the 77(5) exclusion and treatment;
• the trade-asset disregard, treated capital and holding disregard;
• self-employed earnings, and the 77(4) total through the model's earned income;
• gainful self-employment and the floor trigger.

It does not run Axiom, so it will not catch drift in that encoding; rulespec-uk#394 covers that side.

Tests

• YAML (21 cases, hand-computed from the regulation). tests/policy/.../universal_credit/company/uc_company_analogous_business.yaml:
  • ADM H4376 Example 2, Claudia: floor applied.
  • ADM H4376 Example 1, Ezgjan: start-up period, 50% share.
  • 77(4) director pay plus company income.
  • Not main employment: no floor.
  • Taper through uc_income_reduction.
  • ADM H4367, Pablo: property company, capital but no earnings.
  • Trade assets disregarded while engaged, counted when not engaged, and disregarded when the trade is the main employment.
  • 77(5) now, and in 2017 (Chapter 9 excluded, Chapter 10 not).
  • An investor, and a company with neither a trade nor a property business.
  • A couple with two 50% owners.
  • Company capital over the £16,000 limit.
  • A company loss counting as nil.
  • A two-benefit-unit household, where the holding leaves the pool before sharing.
  • A benefit unit reporting its own capital.
  • The benefit cap earnings exemption.
• Hypothesis properties: 5 tests, about 90 seconds.
• Axiom golden cases: 4 tests.
• At 19323628 (main merged in): the UC YAML directory, the Lifetime ISA and CTR suites (305 passed), and the capital tests (allocation, Lifetime ISA, stock periods, mixed-age couples) plus these properties (12 passed). Before the merge: full policy YAML suite 1,308 passed; full pytest 328 passed, 45 skipped. CI runs the full suite.

Enhanced FRS impact

Data and runs. The dataset is a private copy of enhanced_frs_2024_25.h5 (sha256 e433e532…). Every number below is from a real microsimulation run with stored weights, 2025-2030. Both runs are on clean heads: main 00fb451d, branch 19323628 (main merged in).

Main vs this branch: bit-identical. All 21 arrays compared (19 benefit-unit, 2 household) are identical in every year 2025-2030. They include universal_credit, uc_assessable_capital, uc_earned_income, uc_unearned_income, uc_tariff_income, is_uc_eligible, the income components and household_net_income. The dataset has no owner-manager inputs, so the rule is inert.

Preview with the FRS's own director fields (indicative only; not a proposed release). This illustrates what a data build that fills the inputs would do. The FRS 2024-25 job table asks directors of limited companies what share they own (DIRPERC) and what dividends they took (DIVIDEND). For this run only:

• Owner status. stands_as_sole_owner_or_partner_of_company and owned_company_carries_on_trade are true for directors owning 50% or more. The 50% line is an assumption drawn from the ADM examples, not the law. Both dataset copies of each FRS household get the inputs: the original and its capital-gains clone.
• Main employment and engagement. Both are true where the director job has positive usual hours, at least as many as the person's other jobs, and the person is in work now (ILO status).
• Company income. The income share is the director's reported dividends from the company, annualised.
  • The stored DIVIDEND is a weekly net amount. It equals the adult table's DIVIDNET where both exist, despite the question asking about the last 12 months.
  • Dividends are a proxy for the company's income. Retained profit is unobserved, and director income may also sit in the FRS self-employment fields; that overlap is not checked here.
• Not uprated. The inputs are held at 2024-25 cash values in every year.

Capital inputs stay zero, since the FRS has no company balance sheet. Result, against the branch without inputs:

	2025	2026	2027	2030
UC change	−£0.011bn	−£0.011bn	−£0.012bn	−£0.002bn

In 2026, 6.4k benefit units lose UC and none gains. Company earnings total £9.5bn.

Filling the inputs is follow-up data work in policyengine-uk-data. Director shares and dividends are in the FRS job table. Its DIVIDEND is stored as a weekly net amount, and whether director dividends also appear in other FRS income fields has to be checked first.

What this means for #1948

The 19 benefit-unit rows behind #1948 (UC units with more than £50,000 of dividends in 2026) are 15 FRS-half rows and 4 SPI-donor rows. The 15 come from fewer than ten FRS households, each appearing twice because the capital-gains imputation stacks a copy of every FRS household. I linked them to the raw FRS 2024-25 (aggregates only):

2026, stored weights	Model dividend_income	Raw FRS investment-account dividends
UC units with dividends over £50k, FRS half (15 rows)	£3.13bn	£0.008bn
FRS-reported UC benefit units	£2.91bn	£0.011bn

The cohort's FRS households report no dividends from a company they direct. So they are not owner-managers. Their dividends come from policyengine-uk-data, which has two defects:

• impute_income replaces every FRS respondent's dividends with a draw from an SPI model predicting from age, gender and region alone;
• frs.py keys the survey's own dividends on row position, so almost none survive.

PolicyEngine/policyengine-uk-data#498 fixes both.

#1948 also asked how #1837 changes the picture. Real runs of the same dataset on main as it was then (44240bd8, before #1950 merged) follow main's cohort (UC and over £50,000 of dividends: 30.9k units, 19 records):

2026	main	#1837's capital change on main	#1950 (reg 66)	#1837 + #1950
UC to the main cohort	£0.517bn	£0	£0.520bn	£0.538bn
All UC units with over £50k dividends	30.9k	0.9k	43.4k	59.4k
Their UC	£0.517bn	£0.006bn	£0.695bn	£0.911bn
Their dividends	£4.70bn	£0.10bn	£5.57bn	£7.11bn

#1837 removes the cohort's UC only because, without corporate_wealth, tariff income stops applying, and their £4.7bn of dividends then count as unearned income. Reg 66 does not allow that. With dividends treated as the law requires (#1950), nothing in the rules stops these units, whether or not #1837 lands. The fix is in the data.

Not modelled here (tracked separately)

• Reg 62(1)(b). It limits the floor to claimants subject to all work-related requirements. The model applies the floor to every gainfully self-employed claimant, including through this rule. The couple threshold rule (62(3)) and net thresholds (62(4)) are also not modelled: Universal Credit minimum income floor: apply reg 62(1)(b), the couple rule and net thresholds #1975.
• Reg 49. Capital is valued less 10% for sale expenses: Value means-tested capital less 10% sale expenses and secured debt (UC reg 49 and legacy equivalents) #1969 (fixing UC capital ignores reg 49 valuation (10% sale costs and secured debts) #1960). When both PRs are in, the disregarded holding must come off at the value at which it was counted. Whichever merges second makes that change; both PR bodies say so.
• Reg 57A. Carrying a company loss forward against later profits is not modelled.
• Dating. Annual simulations use the rule in force at the start of each tax year, so the 2018-19 tax year uses the as-made 77(5) throughout, although the change took effect on 28 November 2018.
• Filling the owner-manager inputs. Follow-up to the uk-data PR.

Axiom

axiom: uk:regulations/uksi/2013/376/77 encoded-correct for the law in force from 28.11.2018 (rulespec-uk 77.test.yaml, 4 cases, mirrored by test_uc_company_owner_axiom_parity.py) | TheAxiomFoundation/rulespec-uk#394 queued

The queued issue covers the module's two gaps:

• 77(5) is undated. A 2017 case gives the opposite of the law in force; the pinned runner confirmed this on a scratch copy.
• Nothing in Axiom consumes reg 77's outputs: regs 18, 22, 46, 62 and 72 read capital and earnings as free inputs.

Axiom to policyengine-uk mapping (for rulespec-uk#394 and axiom-oracles)

Axiom uk:regulations/uksi/2013/376/77	policyengine-uk (annual)
input person_stands_in_position_analogous_to_sole_owner_or_partner_in_relation_to_company	stands_as_sole_owner_or_partner_of_company
input company_carries_on_trade	owned_company_carries_on_trade
input company_carries_on_property_business_within_meaning_of_corporation_tax_act_2009_section_204	owned_company_carries_on_property_business
inputs person_derives_company_income_that_is_employed_earnings_by_itepa_part_2_chapter_8 / _9 / _10	owned_company_intermediary_earnings_chapter (enum)
input intermediary_employed_earnings_derived_from_person_main_employment_activities	owned_company_intermediary_earnings_from_main_employment
input company_capital_value_or_person_share_value	owned_company_capital
input company_trade_asset_value_or_person_share_used_wholly_and_exclusively_for_trade	owned_company_trade_assets
input person_engaged_in_activities_in_course_of_company_trade	is_engaged_in_owned_company_trade
input person_holding_value_in_company	owned_company_holding_value
input company_income_or_person_share_calculated_as_self_employed_earnings_under_regulation_57 (monthly)	owned_company_income_share (annual)
input person_employed_earnings_as_director_or_employee_of_company (monthly)	employment_income (annual)
input person_activities_in_course_of_company_trade_are_main_employment	owned_company_is_main_employment
company_intermediary_employed_earnings_main_employment_exclusion_applies	uc_company_intermediary_exclusion_applies (dated as in rulespec-uk#394)
company_analogous_owner_or_partner_treatment_applies	uc_company_owner_treatment_applies
person_capital_treated_as_possessed_from_company	uc_company_capital
person_company_holding_disregarded_from_capital	uc_company_holding_disregard
company_income_treated_as_person_self_employed_earnings	uc_company_self_employed_earnings
person_treated_as_gainfully_self_employed_for_company_trade	uc_company_gainful_self_employment
minimum_income_floor_applies_due_to_company_trade	the 77(3)(c) route into uc_mif_applies (which also applies reg 62(5))

Provenance

Law texts, ADM extracts, case-law notes, the Axiom audit and all impact scripts and outputs are in ~/reviews/uc-dividends-1948-2026-09-30/: law/, axiom/, impact/ and diag/. They are local and contain aggregates only.

🤖 Generated with Claude Code

[vahid-ahmadi]

Thanks Max. Reviewed at head 19323628.

What I checked:

• The law. Your reg 77 quote matches legislation.gov.uk word for word, including 77(3)(a) "wholly and exclusively". That wording is stricter than the Sch 10 para 7 business-assets disregard ("wholly or mainly"), so following the regulation over ADM H1880 is right. The dating of 77(5) (Chapters 8/9 until 27.11.2018, then 8/9/10 with the main-employment condition) is right too.
• Tests at the head. Properties plus Axiom parity: 9 passed. UC YAML directory: 245 passed. CI is green.
• A probe at the head. A trading-company owner whose main employment is the company, with £6,000 of pay and a £20,000 income share, gets uc_company_self_employed_earnings £20,000, uc_mif_applies true and uc_earned_income £26,000. That is 77(3)(b) and (4) working as intended.
• Mergeability. It does not merge into current main (b5b09231; the branch is 249 commits behind). There are conflicts in is_benefit_cap_exempt_earnings.py, uc_mif_applies.py and uc_mif_capped_earned_income.py. It merges cleanly with #1969, #1974 and #2131.

Findings:

1. Blocking. variables/gov/dwp/universal_credit/income/income_floor/uc_mif_capped_earned_income.py:20. Main has deleted this file. #1949 replaced it with uc_individual_earned_income_before_mif and uc_individual_earned_income, which use a net floor, the reg 62(3) couple threshold and a per-person tax/NI slice. If you resolve the conflict by keeping main's side, the company earnings are orphaned: nothing reads them, and reg 77(3)(b) silently does nothing. The body's line that "#1949's uc_individual_earned_income reads this variable" is no longer true. Fix:

   • add uc_company_self_employed_earnings next to self_employed in uc_individual_earned_income_before_mif;
   • check it doesn't pick up personal income tax in uc_income_tax_on_earnings, since reg 57 step 3 deducts only tax the person pays;
   • re-derive invariants 4 and 5 against the net floor and the couple rule.

2. Blocking. uc_mif_applies.py:25-30 and is_benefit_cap_exempt_earnings.py:32. Main now gates both on is_uc_assessed_claimant (reg 62(1), and reg 82(1)(a)'s "claimant's earned income"). When you rebase, AND uc_company_gainful_self_employment with claimant, and multiply the company term in the benefit-cap sum by claimant. Otherwise a dependant owner-manager gets the floor or lifts the cap.

3. Blocking (interaction with #1969, which merges cleanly so nothing forces the fix). uc_assessable_capital.py:60-77 and household_uc_unreported_company_holdings.py:22-23. #1969 counts the holding at 90% inside corporate_wealth (or directly_held_shares after #2131), but this PR subtracts it at 100%.

   • On #1969 merged with this branch: savings £5,000, corporate_wealth £10,000, all of it the owner's holding, gives uc_assessable_capital £4,000. It should be £5,000.
   • #1969 will almost certainly land first, so this PR owns the fix, together with finding 4 (one change; see there).
   • Add a YAML case pinning the £5,000.

4. Should fix. Same lines. A holding that isn't in any capital source eats other capital. At the head: savings £10,000, no corporate_wealth, holding £10,000 gives £0. The body says "a holding cannot reduce other capital", but the only floor is at zero on the total. Fix for 3 and 4 together: in both places, subtract min(holding, share-like capital) × (1 − sale_expenses.rate). Share-like capital is corporate_wealth before #2131 and directly_held_shares + unitemised_corporate_wealth after it. Add the £10,000-savings case as a test.

5. Should fix (body). Several statements are stale against current main and should be refreshed after the rebase:

   • "Bit-identical to main" was measured at 00fb451d.
   • "Not modelled: … the couple threshold rule (62(3)) and net thresholds (62(4))" no longer holds: main has both. Only 62(1)(b) remains.
   • The impact table needs re-running on the rebased head.

6. Nit (body, disclosure). There are no record ids or weights in the body, but the "What this means for #1948" section gives dividend totals for a cohort it describes as coming from fewer than ten FRS households. An aggregate that small is close to record-level. I'd keep the conclusion (they aren't owner-managers; it's an imputation artefact) and drop the small-cell totals and row counts.

7. Nit. uc_company_capital.py:36-38. Treating "main employment is the trade" as "engaged in the trade" for 77(3)(a) is sensible, but it's an inference, not the text. A one-line comment saying so would help the next reader.