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How to calculate universal credit

This content applies to England

How universal credit is calculated including components of the benefit and the treatment of income.

Assessment periods

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 five 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 five additional elements, the award of which depends on the personal circumstances of the claimant, are:[2]

  • child element and disabled child additions (a child element will not be allowed for a third, or subsequent, child born on or after 6 April 2017)[3]
  • childcare element
  • carer element
  • limited capability for both work or work-related activity element (before 3 April 2017 this element applied where the claimant has limited capability for work or work-related activity)
  • housing costs element (applicable to tenants, licensees and owner-occupiers).

For further information on the housing costs element, see Housing costs under universal credit.

Calculating universal credit

Universal credit will be worked out by working out the:

  • maximum universal credit; this is the total of the elements that the claimant qualifies for. See 'Components of universal credit' above
  • deductions; this is worked out using both the claimant's earned and unearned income, capital, and by reference to the benefit cap (see below) when appropriate.

Unearned income

Income from certain benefits and other payments is defined in the regulations as 'unearned income'.[4] 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, his/her universal credit will be reduced on a pound-for-pound basis.[5]

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 will not be entitled to claim universal credit. Capital below £6,000 is ignored. Any capital between £6,000 and £16,000 will be subject to a 'tariff income'. This means that it will be assumed to yield income at the rate of £4.35 per month for each £250 (or part thereof) over £6,000 whether or not it does.[6] 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.[7] Some kinds of capital are disregarded.[8]

Earned income

Applicants who are responsible for children and/or have limited capability for work are entitled to a 'work allowance'.[9] A 'lower work allowance' is paid when an applicant has housing costs, and a higher work allowance where s/he does not (perhaps if s/he is staying with friends).[10] This means that when their universal credit is calculated, the income taken into account will be their actual income minus the work allowance. A person claiming universal credit but who also receives housing benefit because s/he is in temporary accommodation will only benefit from the lower work allowance. [11]

Where an applicant does not have children or limited capability for work, all of their income will be taken into account.[12]

Where the claimant has earnings above her/his work allowance (or any earnings if no work allowance applies) a taper will apply and 63 pence will be taken into account for every net additional pound earned.[13]

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. However, 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.[14] The Court held that 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.

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 (see below), the universal credit amount paid will be maximum universal credit minus income as determined above.[15]

Benefit cap

The 'benefit cap' is the maximum amount of welfare benefits that a working age claimant and her/his household can receive. The cap applies to claimants in receipt of universal credit.[16]

For details of the benefit cap, including details of those who are exempt, see Benefit cap.

[1] reg 36 Universal Credit Regulations 2013 SI 2013/376.

[2] regs 23 to 35 Universal Credit Regulations 2013 SI 2013/376; SC & Ors v Secretary of State for Work And Pensions & Ors[2018] EWHC 864 (Admin).

[3] reg 24A Universal Credit Regulations 2013 SI 2013/376, as amended by Universal Credit and Jobseeker's Allowance (Miscellaneous Amendments) Regulations 2018 SI 2018/1129 and (wef 1 Feb 2019) Universal Credit (Restriction on Amounts for Children and Qualifying Young Persons) (Transitional Provisions) Amendment Regulations 2019 SI 2019/27.

[4] reg 66 Universal Credit Regulations 2013 SI 2013/376.

[5] reg 22(1)(a) Universal Credit Regulations 2013 SI 2013/376.

[6] reg 72 Universal Credit Regulations 2013 SI 2013/376.

[7] reg 66(1)(k) Universal Credit Regulations 2013 SI 2013/376.

[8] sch.10 Universal Credit Regulations 2013 SI 2013/376, as amended.

[9] reg 22(1)(b)(ii) Universal Credit Regulations 2013 SI 2013/376.

[10] reg 22(2) Universal Credit Regulations 2013 SI 2013/376.

[11] reg 5A Universal Credit (Transitional Provisions) Regulations 2014 SI 2014/1230 as inserted by reg 6(5) Universal Credit (Miscellaneous Amendments, Saving and Transitional Provision) Regulation 2018 SI 2018/65.

[12] reg 22(1)(b)(i) Universal Credit Regulations 2013 SI 2013/376.

[13] reg 22(1)(b) Universal Credit Regulations 2013 SI 2013/376 as amended by reg.2 Universal Credit (Reduction of the Earnings Taper Rate) Amendment Regulations 2017 SI 2017/348;; ADM Memo 4/17.

[14] R (on the application of (1) Johnson (2) Woods (3) Barrett and (4) Stewart) v SSWP [2019] EWHC 23 (Admin).

[15] s.8(1) Welfare Reform Act 2012.

[16] s.96 Welfare Reform Act 2012; regs 78-83 Universal Credit regulations 2013 SI 2013/376. The exemption from the cap for claimants in receipt of universal credit in the pilot areas taking universal credit claims was revoked on 28 October 2013 by reg 6 Universal Credit (Transitional Provisions) and Housing Benefit (Amendment) Regulations 2013 SI 2013/2070.

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