How universal credit is calculated
Universal credit is made up of a standard allowance and additional elements, with deductions for claimant's earned and unearned income and capital.
Universal credit assessment period
Universal credit uses a whole-month approach when calculating entitlement. The DWP does not have to make a pro-rata payment when a change of circumstances occurs within a monthly assessment period.
A claimant's assessment period begins on the day of claim, and begins on the same day of each following month.
Universal credit components
Universal credit is made up of a standard allowance and additional elements.
The standard allowance depends upon whether the claim is made by:[1]
a single claimant aged under 25
a single claimant aged 25 or over
joint claimants both aged under 25
joint claimants where either is aged 25 or over.
The additional elements, the award of which depends on the personal circumstances of the claimant, are:[2]
child element and disabled child additions
childcare element
carer element
limited capability for both work and work-related activity element
housing costs element, applicable to tenants, licensees and owner-occupiers
A child element is not allowed for a third or subsequent child born on or after 6 April 2017.[3]
Before 3 April 2017 the limited capability element applied where the claimant had limited capability for work or work-related activity.
Transitional elements
Claimants who were moved over to universal credit through managed migration may be entitled to an additional transitional element.[4] This is included if the DWP assess that they are worse off as a result and if they made a claim within a set period.
Some claimants who were previously getting a benefit that included a Severe Disability Premium (SDP) are entitled to a transitional SDP element. Between 16 January 2019 and 26 January 2021 a claimant who was entitled to a legacy benefit that included an SDP could not claim universal credit. The transitional SDP element was available for claimants who had already been moved on to universal credit through managed migration. From 27 January 2021 new claimants who were previously getting a benefit with an SDP will be entitled to the transitional SDP payment from the outset of their claim.[5]
Calculating universal credit
Universal credit is worked out by working out the:
maximum universal credit, that is the total of the elements that the claimant qualifies for
deductions
The deductions are calculated using both the claimant's earned and unearned income, capital, and by reference to the benefit cap.
Unearned income
Income from certain benefits and other payments is defined in the regulations as 'unearned income'.[6] This includes contribution-based jobseeker's allowance, contribution-based employment and support allowance, and carer's allowance. Where a claimant has unearned income defined in the regulations, their universal credit will be reduced on a pound-for-pound basis.[7]
Benefits or other payments not defined in this way will not be counted as income and will not affect calculation of universal credit. These include:
child maintenance payments
child benefit
disability living allowance and personal independence payment
Capital
A claimant with capital of over £16,000 is not entitled to claim universal credit. Capital below £6,000 is ignored. Any capital between £6,000 and £16,000 is subject to a 'tariff income'. This means that it is assumed to yield income at the rate of £4.35 per month for each £250 over £6,000 whether or not it does.[8] Tariff income is treated as unearned income for the purposes of the universal credit calculation and will be deducted pound for pound from maximum universal credit.[9] Some kinds of capital are disregarded.[10]
Earned income
Applicants who are responsible for children or have limited capability for work are entitled to a work allowance.[11]
A lower work allowance is paid when an applicant has housing costs. A higher work allowance is paid where they do not, for example they are staying with friends rent-free.[12] This means that when their universal credit is calculated, the income taken into account is the person's actual income minus the work allowance.
A person who claims universal credit but who also receives housing benefit because they are in temporary accommodation can only benefit from the lower work allowance. [13]
Where an applicant does not have children or limited capability for work, all of their income is taken into account.[14]
A taper applies where the claimant has earnings above their work allowance (or any earnings if no work allowance applies). Before 24 November 2021, 63 pence was taken into account for every net additional pound earned.[15] From 24 November 2021, this has been reduced to 55 pence.[16]
Earned income and the assessment period
The general rule is that earned income for an assessment period should be equivalent to the actual amount received during that period.
In one case it was held that the DWP was wrong to treat combined salaries paid in respect of two different months as the amount received in respect of a single monthly assessment period simply because, due to the dates on which they were paid, the salaries were received within that assessment period: the calculation may need to be adjusted where the actual amounts received in an assessment period do not reflect the income earned in respect of that period.[17]
Other exceptions to the general rule can be found in Advice for Decision Makers (ADM) Chapter H3.
For fuller information on how income is treated for universal credit purposes see Revenue Benefits.
Universal Credit amount
Subject to the benefit cap the universal credit amount paid will be maximum universal credit minus income as determined above.[18]
Benefit cap for universal credit claimants
The 'benefit cap' is the maximum amount of welfare benefits that a working age claimant and their household can receive. The cap applies to claimants in receipt of universal credit.[19]
For details of the benefit cap, including details of those who are exempt, see Benefit cap.
Recovery of universal credit overpayments
An overpayment of universal credit is an amount which 'may be recovered by the Secretary of State' by virtue of specified legislation.[20] This means any amount paid in excess of entitlement.[21] All overpayments are recoverable, including those arising from official error, although the DWP has the discretion not to recover.[22]
Regulations make provision for recovery by means of deductions from benefits and by means of a Direct Earnings Attachment.[23]
Last updated: 25 January 2022