Universal Credit: Payments can be affected by earnings and this is how the system operates | Personal Finance

Universal Credit payments are designed to change automatically if earning levels change. The actual amount of hours a person works will not be taken into account, it is purely focused on the earnings. Generally, Universal Credit payments will be reduced by 63p for every £1 earned. The government provides a benefits calculator which calculates how increasing hours or starting a new job could affect payments. However, there are circumstances where claimants can receive a certain amount of income or support without it automatically reducing their Universal Credit payments.

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Claimants who hit certain criteria could be eligible for what is known as “work allowance”.

Due to this allowance, a person can earn a certain amount before Universal Credit is reduced if they or their partner are either:

Responsible for a child or young personLiving with a disability or health condition that limits capability for work.

If these circumstances apply, the claimant will receive a work allowance, which is given on a monthly basis and currently has two rates.

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Earnings

Earnings can effect Universal Credit payouts (Image: GETTY)

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The rollout of Universal Credit is still being worked on (Image: EXPRESS)

The two rates depend on if the Universal Credit payments includes help with housing costs.

Examples of housing costs can include rent or mortgage payments and certain service charges.

If money is being received for housing costs the work allowance can be affected drastically.

If the claimant receives help with housing costs, their monthly work allowance will be £287. If the claimant does not get help with housing costs, the allowance is £503.

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An example of how this could work in practice is as follows.A claimant has a child and they get money for housing costs in their Universal Credit payment.

The claimant is working and earns £600 during an assessment period. In this case, the work allowance will be £287, meaning the claimant can earn £287 without any deductions being applicable.

The remaining amount is £313 (£600 minus £287) and 63p will be taken from this amount for every £1.

The calculation is £313 x £0.63 = £197.19. So, this means that £197.19 will be deducted from the overall monthly Universal Credit payment.

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The earnings system may be of particular interest for those on shift work (Image: GETTY)

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At first glance this may come across as penalising but it is designed to have the opposite effect.

The system is set up to try and encourage claimants to seek work where possible. So long as the overall system works correctly, claimants should receive more income from a combination of work and Universal Credit payments than if they just received Universal Credit alone.

The same rules should apply for couples who claim Universal Credit but the earnings from both of them will be used for the calculations.

Earnings should be kept an eye on as any change will affect Universal Credit payouts and other support.

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The Universal Credit system is designed to encourage people to seek out employment (Image: GETTY)

As income increases, Universal Credit will be lowered until it is stopped altogether. The claimant should be aware of this but the government (likely through a job centre work coach) will inform them of when it will happen.

The government has processes in place to manage cases where earning levels may not be consistent, which may be of particular interest for people on shifts or zero hour contracts. If earnings, for any reason, decrease after once being high enough to no longer need Universal Credit the claimant will need to make an entirely new claim.

There is also a system in place to manage “surplus earnings”. If monthly earnings are more than £2,500 over the amount where payments stopped, it will be categorized as surplus earnings. This surplus will be carries forward to the following month where they could towards earnings.

If this new amount is still over the amount where the payments stopped, there will be no further payments. If the earning fall below the amount where the payment stopped, the surplus will decrease. Eventually, when this surplus is gone the payments will continue again.