Deductions from universal credit for debts

The DWP can use its discretion to deduct money from a claimant's universal credit and either:

• pay off a debt owed to the DWP by the claimant

• pay it directly to creditors who are owed money by the claimant

Deductions for debts to creditors other than the DWP are known as ‘third party deductions’.

How much can be deducted

The amount that can be deducted from universal credit depends on the type of debt.

Universal credit regulations allow the DWP to deduct a maximum of 40% of a claimant's standard allowance for debts.[1] The standard allowance amount is based on the claimant's age and whether they claiming as a single person or jointly with their partner.

The DWP can only exceed this percentage if it decides that it is the claimant's best interests and the deductions are for:[2]

• owner-occupier service charges

• rent and service charges included in rent

• fuel costs

The regulations set out a priority order for which deductions should be made where the total amount of deductions would exceed 40%.[3]

The DWP's current policy limits total deductions to a maximum of 25% of the standard allowance.[4]

The DWP must consider the claimant's personal circumstances instead of automatically setting a deduction at the maximum amount allowed.[5] Deductions must not reduce the claimant's universal credit award to below one penny.[6]

The DWP can take deductions from universal credit for money that it is owed by the claimant. This is not a sanction, which is where the DWP reduces universal credit because the claimant did not meet a condition of their claimant commitment.

Deductions from universal credit for money owed to the DWP are administered by its Debt Management team.

Recovery of benefit advances

The DWP can take deductions from universal credit to repay:[7]

• advance payments of universal credit

• budgeting advances

The regulations refer to these as 'payments on account'.

The deduction amount is calculated to repay the advance in instalments over a certain time period. This can be between six and 24 months.[8] The DWP must give written notice to the claimant of their liability to repay the advance and that the amount will be deducted from subsequent payments of universal credit when the advance is agreed.[9]

DWP guidance states that in exceptional circumstances repayments can be delayed for up to three months if the claimant cannot afford to pay them.[10]

Budgeting advances that were paid while the claimant was in receipt of another benefit and were not paid off when they started claiming universal credit are recovered as an overpayment.[11]

Recovery of benefit overpayments

When a claimant receives more benefit than they are entitled to it is called an overpayment. In most cases, the DWP can make the claimant pay the money back, regardless of why the overpayment happened.[12] The DWP can take deductions from the person's universal credit to recover the overpayment.[13]

The repayment amount for benefit overpayments is worked out as a percentage of the standard allowance. The regulations allow the DWP to deduct a maximum of 40% of a claimant's standard allowance to repay an overpayment.[14]

The DWP's current policy is to limit deductions to the following percentages of the standard allowance:[15]

• 25% if the overpayment was the result of fraud

• 25% for non-fraud cases but the claimant's universal credit was reduced because of earned income

• 15% in all other cases

The following debts are also treated as benefit overpayments and repayment deductions are worked out in the same way:

• advances that were paid while the claimant was in receipt of another benefit before they claimed universal credit[16]

• recoverable hardship payments which were made while the claimant was subject to a sanction[17]

• civil penalties imposed by the DWP due to negligently providing incorrect information or failing to provide information without reasonable excuse[18]

• financial penalties in suspected fraud cases where these are accepted by the claimant as an alternative to prosecution[19]

Recovery of a housing costs element overpayment

Most overpayments of the housing costs element are recoverable from the claimant. The overpayment can be recovered from the claimant's universal credit.

Some overpayments of the housing costs element are recoverable from the claimant's landlord.[20] Where the claimant is still in receipt of universal credit and living at the same address, the DWP can take a deduction of up to the full amount of the housing costs element to recover the money that is owed by the landlord.[21] This can result in there being a shortfall in the rent.

A landlord who has been found guilty of an offence relating to the overpayment or has agreed to pay a penalty as an alternative to prosecution:[22]

• must treat the claimant as having paid the amounts that have been deducted

• cannot put the claimant into arrears for the amounts that have been deducted

The DWP must notify both the landlord and the claimant of this.[23]

In all other cases, the claimant might need to pay the shortfall in the rent to avoid accruing rent arrears.

The DWP can pay all or part of a claimant’s universal credit entitlement to another person if it is in the best interests of the claimant and their family to do so.[24]

This can include third party deductions to pay part of a claimant's universal credit to creditors.

Third party deductions can only be made for:[25]

• owner-occupier service charges

• rent and service charges included in rent

• fuel costs

• water charges

• council tax

• community charges

• magistrate court fines

• child maintenance

• certain loans made by a credit union or similar mutual organisation

• refugee integration loans

The DWP can make third party deductions in respect of a maximum of three different debts at one time.[26]

Most third party deductions are worked out as 5% of the standard allowance, except for:

• rent and service charges included in rent

• fuel costs and water charges

• child maintenance

Deductions for rent and service charges

Owner-occupiers can have 5% of the standard allowance deducted when they are in debt for some service charges.[27]

Renters can have between 10 and 20% of the standard allowance deducted for arrears of rent and service charges which are paid with or as part of their rent.[28]

For a third party deduction to be set up for these debts, the claimant must:

• be occupying the accommodation to which the debt applies

• be entitled to the housing costs element or in receipt of housing benefit for ‘exempt accommodation’

• not have earned more than the work allowance which applies to them in the previous assessment period

Universal credit regulations do not state how much debt the claimant must be in before the DWP can set up third party deductions for rent and service charge arrears.

The DWP's Alternative Payment Arrangements guidance states that the claimant's landlord can request a rent arrears deduction if they have accrued rent arrears to the value of two months’ rent or more.[29] The guidance does not state whether the same principle applies where the arrears are just for ineligible service charges.

When third party deductions have been set up for rent arrears or service charges, the deductions must stop if the claimant's earnings are equal to, or exceed, the work allowance for three monthly assessment periods.[30]

The DWP will only make deductions for fuel and water charges owed to a claimant’s current supplier.[31]

Third party deductions cannot be set up for ongoing rent or service charges. Instead, the claimant or the landlord can request that the DWP sets up a managed payment to landlord, which is a type of alternative payment arrangement (APA).

Deductions for fuel and water

The DWP can deduct 5% of the standard allowance plus an estimated amount for the claimant's ongoing consumption when they are in arrears for fuel or water costs.[32] Third party deductions for fuel debt are sometimes called 'Fuel Direct'.

From 1 April 2023, new deductions or increases to existing deductions for ongoing fuel consumption can only be made:[33]

• following an application by the fuel supplier

• with the claimant's consent

Suppliers can still apply for deductions for fuel cost arrears without the claimant's consent.

Deductions for ongoing fuel and water charges must stop when the claimant moves out of the address where the debt was accrued. Deductions to pay the debt can continue.

From 1 April 2022 to 6 April 2023, there was a temporary pause on fuel suppliers being able to request deductions for ongoing fuel costs.[34]

Deductions for child maintenance

The DWP can set up deductions for either ongoing payments or arrears of child maintenance. The maximum amount that can be deducted is £8.40 per week.[35]

Most decisions in relation to deductions from universal credit are not appealable.[36]

Claimants can ask for a revision or supersession of the decision. If this is not successful often the only legal remedy is to apply for a judicial review in the High Court. Claimants should seek specialist advice if they are considering applying for a judicial review. The Child Poverty Action Group's Judicial Review Project provides advice and resources for welfare rights advisers.

Challenging deductions for overpayments

A claimant can challenge the decision which led to the overpayment by asking for a mandatory reconsideration or appeal.

The decision to recover an overpayment or a hardship payment which was paid while the claimant was subject to a sanction is discretionary.[37]

DWP guidance states that when a claimant is experiencing severe hardship or ill health because of the repayments, it can consider whether to:[38]

• temporarily suspend recovery

• reduce the recovery rate

• write off or waive the debt

Following a successful judicial review challenge, claimants who asked for recovery of hardship payments to be waived between 1 January 2014 and 11 January 2021 and were refused by the DWP might be able to ask for a refund. An application form will be available on gov.uk between 19 December 2022 and 19 June 2023.

Challenging third party deductions

The claimant or the creditor can ask the DWP to set up third party deductions. The claimant's consent is not required by the DWP except in some cases relating to fuel and water charges.[39]

The Court of Appeal held that the DWP had been acting unlawfully by failing to seek representations from claimants before applying third party deductions from legacy benefits for utility debts.[40] Although this case does not apply directly to decisions about universal credit deductions, it could be helpful for UC claimants. The UC deductions guidance for decision makers also refers to the interests of the claimant and their family.

If a claimant faces hardship because of a third party deduction, or the total level of third party deductions, they can ask the DWP to reduce the amount.[41]

Claimants who are going through personal insolvency might be able to have their deductions from universal credit suspended or written off.

Where a debtor is having deductions taken from their universal credit for debts, the Insolvency Service notifies the DWP that the claimant is subject to insolvency.

Personal insolvency solutions include:

• bankruptcy

• debt relief orders (DROs)

• individual voluntary arrangements (IVAs)

Bankruptcy and DROs are legal processes which can help people in debt to have some of their debts written off.

An IVA is a legally binding agreement which involves making affordable repayments towards debts and can also result in having some debt written off.

Each insolvency solution has different rules about which debts can be included.

Read more about qualifying debts in a debt relief order.

Insolvency periods

Bankruptcy usually lasts for 12 months. After this time, the bankruptcy is 'discharged' and the person is no longer legally responsible for any debts that were included in the bankruptcy.

After a DRO is approved, it is in force for a moratorium period, which is usually 12 months. Qualifying debts are written off when the moratorium ends. The DRO can be revoked during the 12 month period and creditors can pursue their debts again.

Under an IVA, the person in debt usually agrees to make monthly payments for five or six years, or to pay a lump sum towards the debts. During this time, qualifying debts are frozen. Money still owed at the end of the arrangement is written off.

Deductions for debts to the DWP

The Benefit Overpayment Recovery Guide explains how insolvency affects recovery of benefit overpayments.[42]

It is DWP policy to suspend deductions for overpayments during an insolvency period. Whether an overpayment is written off at the end of the insolvency period depends on when the overpayment was accrued and if it was included as part of the insolvency solution.[43]

Debts incurred through fraud are not discharged after bankruptcy or a DRO.[44]

Deductions for benefit advances that have already been paid are suspended during an insolvency period. The debt is discharged at the end of the period unless it is classified as fraud. Advances that are paid during an insolvency period are recovered as usual.[45]

Deductions for debts to other creditors

Third party deductions for debts that are included in an insolvency solution must stop. The rules are specific to the type of insolvency and the types of debt.

The DWP must stop some types of deductions from universal credit when the claimant is in a:

• breathing space moratorium

• mental health crisis moratorium

During the moratorium period the DWP must not:[46]

• make deductions for an overpayment of benefit

• commence new third party deductions for a moratorium debt

Deductions are allowed during a moratorium if they are for:

• recovery of advance payments[47]

• third party deductions which were already being made before the moratorium[48]

• debts incurred through fraud[49]

Read more about breathing space and mental health moratoriums.