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.

This content applies to England

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]

Where the claimant has earnings above their work allowance (or any earnings if no work allowance applies) a taper applies and 63 pence is taken into account for every net additional pound earned.[15]

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.[16]

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.[17]

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.[18]

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.[19] This means any amount paid in excess of entitlement.[20] All overpayments are recoverable, including those arising from official error, although the DWP has the discretion not to recover.[21]

Regulations make provision for recovery by means of deductions from benefits and by means of a Direct Earnings Attachment.[22]

Last updated: 18 March 2021

Footnotes

  • [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 52(2), reg 53 and reg 55 Universal Credit (Transitional Provisions) Regulations 2014/1230 as inserted by reg 3(7) Universal Credit (Managed Migration Pilot and Miscellaneous Amendments) Regulations 2019 SI 2019/1152.

  • [5]

    schedule 2 Universal Credit (Transitional Provisions) Regulations 2014/1230 as inserted by reg 2 The Universal Credit (Transitional Provisions) (Claimants previously entitled to a severe disability premium) Amendment Regulations 2021/4

  • [6]

    reg 66 Universal Credit Regulations 2013 SI 2013/376.

  • [7]

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

  • [8]

    reg 72 Universal Credit Regulations 2013 SI 2013/376.

  • [9]

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

  • [10]

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

  • [11]

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

  • [12]

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

  • [13]

    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.

  • [14]

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

  • [15]

    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.

  • [16]

    R (on the application of Johnson and others) v Secretary of State for Work and Pensions [2019] EWHC 23 (Admin). It should be noted that DWP is seeking permission to appeal this decision and has said that, in the meantime, it is relying on powers in social security law which allow it to continue to apply the law as it stood before this ruling until the case is finally concluded - see House of Commons Library Briefing Paper number 8501 of 13 August 2019.

  • [17]

    s.8(1) Welfare Reform Act 2012.

  • [18]

    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.

  • [19]

    reg 2 Social Security (Overpayments and Recovery) Regulations 2013 SI 2013/384. The legislation specified is s.71ZB(1) Social Security Administration Act 1992.

  • [20]

    s.71ZB(1) Social Security Administration Act 1992.

  • [21]

    See Para 5.74 - 5.76, Chap 8 and Annex 5, Benefit Overpayment Recovery Guide, DWP, May 2017; LP v Secretary of State for Work and Pensions (UC) [2018] UKUT 332 (AAC).

  • [22]

    Social Security (Overpayments and Recovery) Regulations 2013 SI 2013/384 as amended by Social Security (Overpayments and Recovery) Amendment Regulations 2015 SI 2015/499.