How income affects an award
Once the DWP have worked out your maximum Universal Credit award they will then go on to see if it should be reduced by taking deductions for any assessable income you have.
If your household has no earnings, other income, capital or savings, the Universal Credit award you receive will be your maximum Universal Credit award, unless you are affected by the Benefit Cap or have any deductions.
The DWP will reduce your Maximum Universal Credit to take account of:
- Earnings from work
- Certain other unearned income
- Savings or capital worth over £6,000
Earnings from work
The DWP will take into account any earnings you or your partner receive within an Assessment Period.
If you are an employed worker, the DWP will normally find out from HMRC how much you have earned in an Assessment Period. If you are self-employed, you will need to report your monthly income and expenditure yourself at the end of each Assessment Period.
Your Universal Credit payments will adjust automatically if your earnings change. It doesn’t matter how many hours you work, it’s the actual earnings you receive that count.
Earnings include payments such as: wages, overtime, tips, commission, bonuses, holiday pay, sick pay and tax refunds.
If you are part of a couple and receive a joint Universal Credit payment, both your earnings will be used to calculate how much Universal Credit you get.
Any earned income you receive over your work allowance if you have one (see below) will reduce your Universal Credit award by 55p per £1 of income.
NOTE: Statutory Sick Pay, Statutory Maternity Pay, Statutory Paternity Pay and Statutory Adoption Pay all count as earnings
Some people have part of their wages ignored – called a work allowance.
You’ll have a work allowance if:
- You are responsible for a child/young person, or
- You or your partner have been found to have a limited capability for work.
If neither of these circumstances apply to you, your Universal Credit payments will be affected as soon as you start earning money from paid work. For each pound net of your earnings, your UC award is reduced by 55p.
If you do fall into one of these groups, then your earnings will be reduced by a work allowance before they affect your Universal Credit award. There are two Work Allowance rates – which one you get depends on whether your Universal Credit award includes a Housing Costs Element:
- If your award includes a Housing Costs Element, your Work Allowance will be £335 per month
- If your award does not include a Housing Costs Element, your Work Allowance will be £557 per month
For each pound net of your earnings over any applicable work allowance, your UC award is reduced by 55p.
Leah is a single parent with three children. They live in a rented three bedroom house and Leah earns £300 a month. She has a Work Allowance of £335 – as her wage is lower than this, her wages will not decrease her UC award.
George and Clara live in a one bedroom rented flat. George works full time and earns £1500 a month after tax. Clara isn’t able to work due to health problems – she has been found to have a Limited Capability for Work. They have a Work Allowance of £335 so only £1165 (£1500-£335) of George’s income will be considered and their UC award will be reduced by £640.75 (£1165*0.55).
Ali lives with his parents in their house. He works part-time and due to health problems gets Personal Independence Payment. His Support Worker suggests that – even though he is working – he provides the DWP with a ‘fit note’ and request a Work Capability Assessment. She explains that if he is found to have a Limited Capability for Work the DWP would then ignore the first £557 a month of his earnings as he would have a Work Allowance.
NOTE: The work allowance should be applied to your or your partner’s earnings if either of you have been found to have a Limited Capability for Work, even if you are not entitled to a LCW Element.
How often do you get paid?
Universal Credit payments are made every calendar month, but if you’re working your earnings may be paid weekly, fortnightly or every 4 weeks.
This will mean that every now and again you will get more payments from work than is usual during a calendar month.
If you’re paid 4 weekly, fortnightly or weekly, then at certain points of the year, your earnings in an Assessment Period may be higher than usual. This can sometimes affect people paid monthly too.
See How does UC work for workers? for more information.
When this happens, your UC award will be less than it usually is, and may even reduce to nil. If this happens, make sure you reclaim UC (log into your account and follow the instructions).
You will need to consider when this might happen to you and budget for this.
Seek advice from a Benefits Adviser or a Money Adviser.
Sharon works at a local bakery. She gets paid weekly – the amount never changes. However every few months she gets paid 5 wages in one of her Universal Credit Assessment Periods and for that month her Universal Credit award drops. She found it difficult to budget at first, but now makes sure her rent and other bills are paid each week out of her wage and does a big shop when she gets her Universal Credit payments – that way she makes sure she doesn’t get into debt.
Extra Rules for some self-employed people
If you are self-employed, then you will need to report your income and allowable expenses at the end of each Monthly Assessment Period.
If your earnings are low, your Universal Credit may be worked out using a higher earnings figure than you have reported. This is called the ‘Minimum Income Floor’.
The ‘Minimum Income Floor’ is set at the level of the national minimum wage at the number of hours the DWP expect you to work. How many hours this is depends on your circumstances. For many people it will be 35 hours per week, but if you have children it might be less.
How it works: If your earnings are below this in any Assessment Period, then the ‘Minimum Income Floor’ figure will be used to reduce your Maximum Universal Credit award instead of your actual earnings figure (i.e. your award will be reduced as though you earnt more than you actually did).
If you earn above the ‘Minimum Income Floor’ in any Assessment Period, your actual earnings will be used to work out your benefit.
See What if I am self-employed? for more information.
Other unearned income
This means any other money that you may receive – for example, from other benefits or a pension.
The following income will be taken into account when your Universal Credit award is assessed and will reduce your award £1 for £1.
- Carer’s Allowance
- Industrial Injuries Disablement Benefit
- Maternity Allowance
- New style Employment and Support Allowance
- New style Jobseeker’s Allowance
- State Pension
- Work pensions
When working out your Universal Credit, there are some other benefits and income that aren’t taken into account. These include:
- Attendance Allowance/ Constant Attendance Allowance
- Child Benefit
- Child Maintenance
- Disability Living Allowance/ Scottish Child Disability Payment
- Personal Independence Payment/ Armed Forces Independence Payment
- War Disablement Pension
Stewart finished work 4 months ago and made a claim for Universal Credit. He gets a small works pension (payable from age of 55) of £134.00 a month and standard rate daily living Personal Independence Payment. His pension will be taken into account when his Universal Credit is assessed and will reduce his award £1 for £1, but his Personal Independence Payment is totally disregarded.
Savings / Capital
See How savings affect an award for more information.