Universal Credit - leaving you out of pocket?

Due to the way Universal Credit is calculated, some RCN members who are working whilst claiming Universal Credit may find their benefits incorrectly reduced.

This means they may lose 'work allowances' worth up to £344 per month, and could be incorrectly subject to the benefit cap.

On this page you can find more information about this as well as guidance on how to challenge decisions where this happened.

Paydays and monthly assessment periods

Some people claiming UC (known as “claimants”) could lose hundreds of pounds each year because their paydays clash with the UC monthly 'assessment periods.'

Because of the way UC works, working claimants are often unable to tell how much benefit they will receive from one month to the next.

UC assessment periods run for a calendar month, starting from the date UC 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.

There are situations where claimants can be paid a day or two early e.g. if their payday falls on a weekend or bank holiday. When this happens, claimants can be recorded as having had two paydays (or two lots of earnings) in one assessment period, and none in the assessment period after.

Two lots of earnings record in one assessment period

When claimants appear to have no earnings in the following assessment period (due to receiving two payments in the assessment period before), then rather than seeing their UC increase to compensate for this, it can actually lead to:

• A reduction in the amount of UC awarded
• Losing the effect of one month's “work allowance.”
• Being subject to the “benefits cap.”

If you’re paid at the end of the month

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.

For example, 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.

Other claimants who may also have different numbers of paydays in different assessment periods over the course of a year include claimants who:

• Get paid weekly
• Get paid fortnightly
• Get paid four-weekly
• Do agency shifts that are paid intermittently

Losing work allowances

A work allowance is the amount that you can earn before your Universal Credit payment is affected.

You may be eligible for a work allowance if either you (and/or your partner):

• have responsibility for a child
• have limited capability for work (e.g. are disabled or ill)

If a claimant is recorded as having two lots of earnings or paydays in one monthly assessment period, they will lose their work allowance every time it happens.

This can mean a loss of £344 if you are claiming housing costs, or a loss of £573 if not.

Backdated pay and tax rebates

If you are claiming UC and receive a:

• lump sum of backpay
• payment of accrued holiday pay
• tax rebate for a previous year’s work,

then this is treated as income for the assessment period in which it falls, even if it relates to a period before you claimed UC. This means that UC is withdrawn at the rate of 55p in the pound against this income.

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

Benefit cap

The benefit cap restricts total benefit awards for claimants who have earnings below £658 a month, which is equivalent to working 16 hours a week at the ‘national living wage’ for over-25s.

The limits are £384.62 a month in benefits (£442.31 a week 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.

New regulations 

New regulations have been issued to amend the effect on Universal Credit of double wage payments in one calendar month.

The changes implement the Court of Appeal judgement on Secretary of State vs Johnson & Others and mean that only one set of earnings will be taken into account for each assessment period for people who are paid calendar monthly. 

What you can do

Following the new regulations, if you find you have been subject to a reduction in your UC, or lost the work allowance included in your UC because of the reasons detailed above, you should immediately request a mandatory reconsideration and cite the Regulations that are now in force - The Universal Credit (Earned Income) Amendment Regulations 2020.

You could also apply for a mandatory reconsideration if you’ve received (or are due to receive) some form of backdated pay which causes financial detriment due to being treated as earned income in one UC assessment period. We have attached a template letter. 

How we can assist

The RCN 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.

See booking an appointment for more information about requesting a referral to the Welfare Service