Working out your earnings  

Earned income includes:

  • Wages and overtime pay

  • Fees

  • Tips, bonuses and commission

  • Holiday pay (even if owed from before date of UC claim)

  • Statutory Sick Pay (SSP) and other sick pay from your employer

  • Statutory Maternity Pay (SMP), Statutory Adoption Pay (SAP), Statutory Paternity Pay (SPP), Statutory Shared Parental Pay (SSPP), Statutory Parental Bereavement Pay (SPBP) or other pay from your employer while your on maternity, adoption, paternity or parental leave.

  • any refund of income tax or national insurance contributions for a tax year when you were in paid work. This includes tax from unearned income but not self-employment.

  • an equal pay settlement - e.g. through a 'single-status' agreement 

The DWP usually gets information on your earnings from the records your employer sends to HM Revenue and Customs (HMRC) each time you are paid. So what counts for earnings for UC is normally what is recorded on PAYE (Pay as you earn) records and is defined in terms of what counts as taxable income. However, there are differences, and not all kinds of taxable income count for UC purposes.

 

What does not count as earnings

Types of income not taken into account for UC include the following (some of which are taxable):

  • expenses incurred 'wholly, exclusively and necessarily' in the course of your employment
  • certain taxable and tax-exempt expenses and allowances - e.g. mileage allowance or homeworkers' additional expenses (e.g. listed on HMRC Form P11D from your employer
  •  expenses if you are a service user being consulted about provision of service by certain public bodies
  • benefits in kind - e.g. a salary sacrifice scheme, non-cash vouchers (e.g. for childcare), living accommodation connected with work, cars and car fuel benefits, parking or meals
  • allowances for special types of employment - e.g. certain armed forces allowances, free coal to miners or allowances in lieu of coal, and offshore oil and gas workers' travel subsistence and accommodation allowances

Payments when you stop work

Your final earnings when you stop work are taken into account in the assessment period in which they are paid (even if they are paid late). This includes arrears of pay, pay in lieu of notice and accrued holiday pay. The following lump-sum payments are taken into account as capital;

  • statutory and contractual redundancy pay
  • employment tribunal awards for unfair dismissal 

Working out Net earnings

From your monthly earnings for the assessment period, deduct the following payments you make in that period:

  • income tax; and
  • class 1 NI contributions; and
  • any contribution you make towards a personal or occupational pension scheme. If you pay contributions through your employer, your payslip should show your wages after the contributions have been deducted, so there is no further deductions to make

Also deduct any charity payments made under a payroll giving scheme

All UC calculations start with the  maximum UC amount and then deductions are applied to that figure. 

Here we look at earned income and how it reduces the maximum amount of UC. If you (and your partner, if your a joint claim) do not have any earned income, move on to Step Three​

‘Earned income’ is your (and your partner’s, if your a joint claim) wages.  Universal Credit use net earnings from employment or earnings from self-employment after expenses. A calculation is made every month, taking into account what you were paid in wages, after tax and NI and pension (Net Pay).

You may still be able to receive Universal Credit payments when you start work or increase your earnings. You will continue to receive Universal Credit until your earnings are high enough, at which point your payments will stop. That amount will depend on your circumstances.

How earnings affect your payments

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.

If your circumstances mean that you don’t have a Work Allowance, your Universal Credit payment will be reduced by 55p for every £1 you earn.

In other words, you will receive an additional 45p for every £1 you earn (up to a limit that depends on your circumstances), and your total income from earnings and Universal Credit will be more than you would have received from Universal Credit alone.

Work Allowance

If you and/or your partner are in paid work you may be able to receive some earnings before your Universal Credit payment starts to be affected. This is called a Work Allowance.

The Work Allowance only applies to you if:

  • you have responsibility for one or more children (or qualifying young persons), or
  • you or your partner have limited capability for work (a health condition or disability)

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.

There are 2 Work Allowance rates. Which one you get depends on whether your receive help with housing costs, either as part of your Universal Credit payment or through Housing Benefit:

  • If you receive money to help with housing costs your Work Allowance will be £404 per month
  • If you do not receive money to help with housing costs your Work Allowance will be £673 per month

 

If you earn more than your Work Allowance

If you earn more than your Work Allowance, your Universal Credit payment will be reduced. For every £1 you earn above your Work Allowance, your Universal Credit payment will be reduced by 55p. In other words, this means that you will be able to keep 45p of your Universal Credit payment for every £1 you earn (up to a certain limit), and that your total income from earnings and Universal Credit will be more than you would have received from Universal Credit alone.

If your circumstances mean that you don’t have a Work Allowance, your Universal Credit payment will be reduced by 55p for every £1 you earn.

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.

 

Universal Credit is calculated every calendar month at the end of each assessment period, but if you’re working your earnings may be paid differently. In some months this could affect how much Universal Credit you receive.

If you’re paid every 1, 2 or 4 weeks

If your earnings are paid weekly, every 2 weeks 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.

For example, if you are paid every 2 weeks, you will usually get 2 payments from earnings in a month. But because calendar months are mostly longer than 4 weeks, sometimes you will get 3 payments from earnings in a single month.

In these months your earnings will be higher than usual, and this will mean that you get a smaller Universal Credit payment. You will need to make sure that you have managed your money to be able to cope with this smaller payment. It may be the case that your extra payment means that you earn enough that month to receive no Universal Credit payment at all.

If you’re paid monthly

If your earnings are paid monthly, there may be times when you receive 2 sets of wages during one assessment period. This could be because you are paid on the last working day of the month, or because your usual pay day falls on a weekend or bank holiday and so is brought forward. If this affects you it may be possible to move one of your payments to a different assessment period.

If you do get 2 payments from your employer during one assessment period, this will mean that you get a smaller Universal Credit payment. If this happens you should contact your work coach as soon as possible through your online account to ask them to move one of your payments. This will help ensure your Universal Credit payments are more consistent. Please note that this only applies if you are paid calendar monthly by your employer. For example, you will not be able to move your payment if you are paid every 4 weeks.

For more details about this and other payment patterns see here 

Closing your claim because of earnings

If your earnings are high enough to receive no Universal Credit payment in a month, your Universal Credit claim will be closed.

If your Universal Credit has stopped for another reason during the 6 months since you last payment stopped, you’ll need to re-apply for Universal Credit by logging into your online account and confirming that the details you gave before are still correct.

In both of the above cases you will still keep your original payment dates.

If it is more than 6 months after your last Universal Credit payment you will need to make a completely new application.

If your Universal Credit payment includes an amount for housing that is paid straight to your landlord, it’s possible that you may not receive any money from Universal Credit but your landlord continues to receive money towards your rent. In these circumstances your Universal Credit claim remains open.

In cases like this, if your total Universal Credit payment is reduced to less than your housing costs, you’ll need to make up the difference yourself. Your Universal Credit claim will only be closed when there is no payment to either you or your landlord.

 

Surplus earnings 

If you’re claiming Universal Credit, your earnings from previous months may affect how much you get.

If you earn more than £2,500 over the amount you can earn before you receive no Universal Credit payment, you are said to have surplus earnings. These surplus earnings will be taken into account in the next monthly assessment period. This may reduce the amount of Universal Credit you receive, or perhaps mean that you don’t get any Universal Credit payment that month.

Surplus earnings will stop being taken into account once you start receiving Universal Credit payments again, or 6 months after the original surplus was created – whichever is earlier.

If you are part of a couple that has surplus earnings and you separate, the surplus earnings will be divided equally between the two of you. Your half will usually be taken into account if you make an individual Universal Credit claim.

 

Self-Employed

Self employment earnings

 

To work out the amount of your self-employed earnings to take into account in the Universal Credit (UC) assessment period, do the following.

  • Work out your actual receipts for the assessment period (see here).
  • Deduct any permitted expenses from your receipts (see here).
  • From the result (or your share of it, if you are in a business partnership), deduct any payment made in the assessment period for income tax and NI contributions. If the result is negative, there is a loss and the amount of your self-employed earnings is nil (but set minimum earnings may apply – see here).
  • Deduct any contributions made by you to a personal or occupational pension (but not if these have already been deducted from your employed earnings). If the result is negative, the amount of your self-employed earnings is nil (but set minimum earnings may apply – see here).
  • Deduct any unused losses carried forward from earlier assessment periods, starting from the earliest (see here).
  • Check whether the amount worked out as above (adding any earnings from employment) is above a set minimum level of earnings (see here).