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Universal Credit - leaving you out of pocket


Some RCN Members who are working and also claiming universal credit (UC) are having their benefits capped when they shouldn’t be. This means they are losing ‘work allowances’ worth up to £258 per month. This is happening due to the dates on which they are paid by their employer and the dates their universal credit 'assessment periods' happen to fall.

Members who are receiving back-dated pay increases or back-dated increments that are then rolled-up into one payment period are also experiencing similar issues. 

Some people will face losing hundreds of pounds each year because their paydays clash with the monthly 'assessment periods' in universal credit (UC). Universal credit rules leave many working claimants unable to determine how much benefit they will receive from one month to the next. 

Universal credit assessment periods run for a calendar month, starting from the date Universal Credit is awarded. At the end of each month, claimants’ circumstances and income are assessed to determine their entitlement to UC, with payment made a week later in arrears. But where a claimant’s monthly payday is on or close to the first day of their assessment period and they are paid a day or two early some months, because their normal payday would fall on a weekend or bank holiday, they are then recorded as having had two paydays in one assessment period and none in the one after.

Two lots of earnings in one assessment period can leave members facing reduced universal credit awards as well as losing the effect of one month's work allowance (see below). If they appear to have no earnings in the following assessment period - because they received two payments in the preceding one - then rather than seeing their universal credit increase to compensate for this they may find that they are in fact subject to the benefit cap (which was designed to limit how much support is paid to people out of work or with very low earnings) so their support for that month is reduced too. Had they not been treated as having additional earnings in each assessment period they would have a consistent UC award and would be recognised as earning enough not to face the benefit cap.

Claimants whose assessment period start-date and payday are both close to the end of the month are especially likely to miss out, as bank holidays are often in the last days of the month. A worker paid on the last working day of each month in 2018, with assessment periods dated 30th - 29th of the month would have:

  • 6 assessment periods with one payday
  • 3 assessment periods with two paydays
  • 3 assessment periods with no paydays.
Members who are paid weekly, fortnightly or four-weekly or might do agency shifts that are paid intermittently, will also have different numbers of paydays in different assessment periods over the course of a year.

Losing work allowances

For members who are parents, disabled or ill, being paid twice in one month means losing the effect of one month’s work allowance every time it happens – a loss of £207 if claiming housing costs or £503 if not. 

Backdated pay and tax rebates

If you are claiming universal credit and receive a lump sum of back pay or holiday pay, or a tax rebate for a previous year’s work, this is treated as income for the assessment period in which it falls even if it relates to a period before you claimed universal credit. This means that universal credit is withdrawn at the rate of 63p in the pound against this income.

People who have previously overpaid tax or who are owed pay from a time when they were not claiming universal credit would have kept the money in full if they had been taxed correctly or paid on time by their employer. But because the money is only received after you have claimed universal credit, you can lose almost two-thirds of it under the universal credit system.

Benefit cap

The benefit cap restricts total benefit awards for claimants who have earnings below £520 a month, which is equivalent to working 16 hours a week at the ‘national living wage’ for over-25s. The limits are £1,667 a month in benefits (£1,917 in London) for couples or people with children, or a lower amount for single people without children. In universal credit, the decision as to whether the benefit cap applies in each assessment period is based on monthly earnings.

If you are a UC claimant who is paid monthly and is sometimes paid twice in one assessment period and none in the next (because of when your payday and assessment period dates fall), you may then be benefit capped as you appear to have no earnings in months when you have no paydays. 

Challenging the way DWP apportion Earned Income when assessing Universal Credit 

Following action by the Child Poverty Action Group (CPAG) to judicially review the rigidity of the assessment periods in the Universal Credit Regulations, a High Court judgment (Johnson) was given on 11 January 2019, which determined that the DWP was incorrectly interpreting its own regulations in relation to assessment of earned income received in the same UC assessment period.    

It is our understanding The Secretary of State is currently seeking permission to appeal to the Court of Appeal against the High Court decision.   However, as no stay of the High Court judgment has been sought, the Johnson ruling should apply in cases where similar facts are present.   

So, if you have been subject to a reduction in your UC due to receiving two separate wages in one UC assessment period, for example because your regular payday fell on a weekend or bank holiday, and you have lost the work allowance included in your UC, you may want to consider requesting a mandatory reconsideration.

Also, if you have received or are due to receive some form of backdated pay and you are in receipt of UC, you may identify a financial detriment to you if that payment is treated as earned income in once UC assessment period. 

How we can assist

The Welfare Service can assist you in deciding if you are at a financial detriment, and if you are, give you advice on requesting a Mandatory Reconsideration by the DWP.

Call RCN Direct on 0345 772 6100 and request a referral to the Welfare Service

Case Study

Read Carmen's story here.