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Universal Credit (UC) income and capital

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

1. 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 £293 per month
  • If you do not get help with housing costs through Universal Credit, your Work Allowance is £515 per month.

From 1 December 2021, the Work Allowances are increasing to £335 and £557 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 63% means a deduction of 63p from your maximum Universal Credit award for every £1 you earn over your Work Allowance.

From 1 December, the taper rate of 63% is being changed to 55%. This means that for every £1 you earn over your Work Allowance, your Universal Credit entitlement will go down by 55p.

Example

Olivia earns £14,000 per year, or £1,166 per month. 

She pays tax of £17.37 per month and national insurance of £44.32 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 £1,062.65 per month. However, for calculating Universal Credit her earnings are treated as being £1,072.65 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 £293 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. 

  • £1072.65 - £293 = £779.65

Next the Department for Work and Pensions (DWP) multiplies this figure by 0.63.

  • £779.65 x 0.63 = £491.18

This £491.18 is then deducted from Olivia's Universal Credit. 

Olivia still keeps all her £1,062.65 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: November 2021

 

2. Universal Credit (UC) income: Self-employed earnings

The minimum income floor was suspended in April 2020 and is being reintroduced from August 2021. Below you will find the rules for the minimum income floor when it applies. Your work coach can choose not to apply the minimum income floor if your business is still being affected by coronavirus.

If you are self employed, the Work Allowance and taper rate are the same as for employed people. However, a 'minimum income floor' can be used if you are self employed.

Minimum income floor

When you are self employed and you claim Universal Credit, you are treated as if you are earning a certain amount. This amount is called the 'minimum income floor'.

If the minimum income floor applies to you and you earn below this level in any month, you are treated as earning the minimum income floor.

If you are earning more than the minimum income floor, your actual earnings are taken into account instead.

The minimum income floor is the equivalent of someone working full time (35 hours per week unless you have other responsibilities) on the National Minimum Wage for your age group.

Example: John is a self-employed taxi driver aged 35. He has a slow month and only earns £800. His minimum income floor is £8.91 (National Minimum Wage for 23+ year olds) x 35 (hours per week) x 52 (weeks) ÷ 12 (months) = £1,351.35 per month. This amount would be used to determine his Universal Credit payment for that month, rather than his actual earnings of £800. This means that in this month John would be £350 worse off than someone working as an employee earning the same amount he earned.

Another example: Sally is a self-employed hairdresser aged 22. In her claimant commitment, she has agreed that she can work a maximum of 25 hours per week because she has to look after her son before and after school. She has a good month and earns £1,000. Her minimum income floor is £8.36 (National Minimum Wage for 21/22 year olds) x 25 (hours per week) x 52 (weeks) ÷ 12 months = £905.66 per month. Sally's Universal Credit payment that month would be calculated using her actual earnings of £1,000 rather than her minimum income floor.

The Minimum Income Floor doesn't apply to you if you aren't someone who would be expected to look for work. You can read more about that in our Self Employment and Benefits guide.

Start up period

If you start a business while you are claiming Universal Credit, the minimum income floor will not apply to you for the first 12 months. This 'start up period' gives you a chance to grow your business. In the start up period, your Universal Credit payment is calculated based on your actual earnings even if they are lower than your minimum income floor. 

You get a 12 month start up period for the first 12 months of your Universal Credit claim if you started your business less than one year before you started your claim. You can only have one start up period for each business and you can only have one start up period in every five years.

Started claiming Universal Credit within the past year

The Minimum Income Floor won't apply for you for the first year of your Universal Credit claim.

Proof of self-employed earnings

If you are self employed, you will have to supply monthly 'cash-in and cash-out' figures to the Department for Work and Pensions (DWP).

If you fail to supply these figures between seven days before and 14 days after each assessment period, your Universal Credit payment will be suspended.

Reviewed: November 2021

3. Universal Credit (UC) income: Unearned income

Most unearned income which you could use to meet your living costs will be taken into account in full, so your maximum Universal Credit award will be reduced by £1 for every £1 of unearned income.

Benefit income taken into account:

Updated: October 2021

4. Universal Credit (UC): Capital/ Savings

Any capital/ savings you have under £6,000 is ignored.

Any capital/ savings you have between £6,000 and £16,000 is treated as if it gives you a monthly income of £4.35 for each £250, or part of £250, regardless of whether it does or not. So if you have £6,300 in a savings account, £6,000 of it will be ignored and the other £300 will be treated as giving you a monthly income of £8.70.

If you have capital/ savings over £16,000 as a single claimant or as a couple you will not be entitled to Universal Credit. Some capital can be ignored when working out if you are entitled to Universal Credit.

If you are a member of a couple but have to make a claim as a single person, your partner's capital/ savings will still be taken into account.