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Universal Credit (UC) income and capital - Universal Credit (UC): Earnings

This guide explains the rules relating to income and capital for Universal Credit (UC)

Universal Credit (UC): Earnings

Earnings affect the amount of Universal Credit you receive. If you are paid through Pay As You Earn (PAYE), Universal Credit is automatically updated on the amount of earnings you have received.

Earning more money won't mean any of the Universal Credit elements you are entitled to stop being paid.

You can use our Benefits Calculator to see exactly how much will be deducted from your Universal Credit because of your earnings. 

Universal Credit is calculated based on your net earnings. This means your earnings after deductions for tax, national insurance and pension deductions. 

If you have deductions from your wages for other things (for example student loan deductions, paying back an advance of wages or child support), they won't be taken into account when working out your earnings for Universal Credit.

If your employer pays expenses, they shouldn't be treated as earnings. If they are being treated as earnings by Universal Credit, this probably means your employer is reporting them incorrectly to HM Revenue and Customs (HMRC).

Work Allowance

Some people can earn a certain amount of money before their earnings begin to affect their Universal Credit.

There are different Work Allowance amounts for people who get help with their housing costs through Universal Credit and people who don't. People who get Housing Benefit because they live in temporary or supported accommodation are treated as if they get help with their housing costs through Universal Credit.

Do I qualify for a Work Allowance?

You can get a Work Allowance if you (and/or your partner who you live with) either:

•  have responsibility for a child and/or
•  have a limited capability for work due to illness or disability.

How much is the Work Allowance?

  • If you get help with housing costs through Universal Credit, your Work Allowance is £344 per month
  • If you do not get help with housing costs through Universal Credit, your Work Allowance is £573 per month.

If you have earnings but you (and your partner) are not responsible for a child and do not have limited capability for work, you will not be eligible for a Work Allowance.

Taper Rate

The Taper Rate is the rate at which your maximum Universal Credit award is reduced as your earnings increase.

A Taper Rate of 55% means a deduction of 55p from your maximum Universal Credit award for every £1 you earn over your Work Allowance.

Example

Olivia earns £14,000 per year, or £1,166.67 per month. 

She pays tax of £17.37 per month and national insurance of £45.49 per month.

She pays £32.33 per month into a pension.

Olivia is also paying back a debt through direct deductions from her earnings. She pays £10 per month.

Her take-home pay from work is £1,061.84 per month. However, for calculating Universal Credit her earnings are treated as being £1,071.84 per month.

Olivia has a child and rents her home. Having a child means Olivia gets a Work Allowance. Renting her home means Olivia's Work Allowance is £344 per month. 

To work out her deductions from Universal Credit, the DWP does a calculation. First the DWP subtracts the Work Allowance from Olivia's earnings after tax, national insurance and pensions. 

  • £1071.84 - £344 = £727.84

Next the Department for Work and Pensions (DWP) multiplies this figure by 0.55.

  • £727.84 x 0.55 = £400.31

This £400.31 is then deducted from Olivia's Universal Credit. 

Olivia still keeps all her £1,061.84 take home pay.

Monthly assessment

Your earnings will be assessed monthly to ensure your Universal Credit award is always accurate. The assessment period begins with the first date of entitlement and will then run from the same date each month during your award.

Updated: April 2022

 

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