How Your Earned Income Affects Universal Credit.

Havering Welfare Benefits Adviser Lorraine Moss today writes in the Havering Daily:

It is vital that we budget for each month and know exactly how much total income that we have coming in.  However, when you are on Universal Credit this can be very difficult if your income varies each month.  For example, if you have the opportunity to work overtime it is important that you are able to calculate how much of the money that you have earned will be deducted when you receive your monthly Universal Credit.

What is Classed as Earned Income For Universal Credit?

Earned income is any income that you get directly from your employer.  This includes payments made under the Furlough scheme, statutory sick pay and statutory maternity pay.  Please see https://www.gov.uk/universal-credit/how-your-earnings-affect-your-payments.  Your Universal Credit payment will reduce gradually as you earn more – for every £1 you earn your payment reduces by 63p.  

Unearned Income

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:● contribution based Jobseeker’s Allowance● contributory Employment and Support Allowance● Carer’s Allowance● Widowed mother’s allowance● Widowed parent’s allowance● Widow’s pension● Maternity Allowance● Industrial Injuries Benefit – excluding any increase where constant attendance is needed and for exceptionally severe disablement

Source https://www.turn2us.org.uk/Benefit-guides/Universal-Credit-income-and-capital/Unearned-income#:~:text=Universal%20Credit%20%28UC%29%20income%3A%20Unearned%20income%20Most%20unearned,income%20taken%20into%20account%3A%20contribution%20based%20Jobseeker%27s%20Allowance

Work Allowance

Some claimants are entitled to a work allowance.  The criteria is either you or your partner are responsible for one or more children or qualifying young person or if you or you partner are classed as having a limited capability for work.  Please see https://www.gov.uk/government/publications/universal-credit-work-allowances/universal-credit-work-allowances.  The work allowance means that some of your earned income is disregarded.  There are two amounts of work allowance;

The Higher Work Allowance – The current rate for this is £512.00 and this applies to claimants who do not claim any housing costs, for example people who have a mortgage. 

The Lower Work Allowance –  The current rate for this is £292.00 and this is for claimant’s who have housing costs included in their Universal Credit award. 

Scenarios 

Example A

We have a couple both aged over 25  with 2 children aged 2 and 3.  They have a mortgage so do not receive the Housing element in their claim.  One of them works fulltime and the other stays at home to look after their 2 children.  The earned net income is £1322.53 per calendar month.  Their universal Credit would be calculated as follows;

£594.04 (Standard Allowance) + £235.83 (child element) + £235.83 (child element)

=  £1065.70  Maximum Universal Credit  

Earned Income = £1322.53 – £512.00 (higher work allowance)  =  £810.53

£810.53  x 63% = £510.63

£1065.70( Maximum Universal Credit) – £510.63 =  £555.07  Universal Credit to be paid.

The following month the person who is working gets the opportunity to work an extra 5 days which means their net pay increase to £1627.73.

£594.04 + £235.83 + £235.83

= £1065.70 Maximum Universal Credit

Earned Income = £1627.73 – £512.00 (higher work allowance) = £1115.73

£1115.73 x 63% = £702.91

£1065.70 (maximum Universal Credit) – £702.91 =  £362.79 Universal Credit to be paid

Example B

We have a couple both aged under 25, one of them works 16 hours a week and the other one is unable to work and receives the Limited Capability For Work Related Activity Element.  Their partner also cares for them and receives the Carers element.  They live in a council property and their rent is £400.00 per calendar month. The partner who works has a usual monthly income of £604.59 per calendar month. Their Universal Credit would be calculated as follows;

£488.59 (standard allowance) + £400.00 (housing element) + £341.92 (limited capability for work related activity element) + £162.92 (carer element) = £1393.43  Maximum Universal Credit 

Earned Income = £604.59 – £512.00 = £92.59

£92.59 @63% = £58.33

£1393.43 (max universal credit) – £58.33 = £1335.10 Universal Credit to be paid

The following month the person who is working has the opportunity to work an extra 16 hours, this increases their net income to £744.11.  Let’s see the impact this has on his Universal Credit payment;

£488.59 + £400.00 + £341.92 + £162.92

= £1393.43  Maximum Universal Credit

Earned Income = £744.11 – £512.00 = £232.11

£232.11 x 63% = £146.23

£1393.43 – £146.23 = £1247.20  Universal Credit to be paid

Example C 

Is a 36 year old woman who normally works 25 hour a week and her monthly net pay is £944.67.  She lives in a privately rented property and her rent is £897.00 per calendar month.  Unlike the other examples she is not eligible for the work allowance because she has no children and does not receive the Limited capability for work element.  Her Universal Credit is calculated as follows.

£409.89 (standard allowance) + £897.00 (housing element) = £1306.89  Maximum Universal Credit

Earned Income = £944.67

X 63% = £595.14

£1306.89 – £595.14 = £711.75  Universal Credit to be paid

The following month, the shop where she worked have offered her extra hours because of the Christmas rush and she works an extra 30 hours.  Her monthly earned net  income for this month will be £2078.27.  Lets see the impact this has on her Universal credit.

£409.89 + £897= £1306.89  Maximum Universal Credit

Earned Income = £2078.27

X 63% = £1309.31

Maximum Universal Credit = £1306.89  therefore she will not receive any Universal credit this month.

I hope that you find the following calculations helpful. I am aware that many people working particularly in retail could be offered extra hours in the build up towards Christmas and we will all be spending a lot more money than normal. It is vital that if you are on Universal Credit you are able to see how the extra hours you have worked will affect the amount of Universal credit that you receive. If you are not able to calculate it you can always check with The Universal Credit helpline by calling 0800 328 5644.