Calculating universal credit

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 is made up of a standard allowance and five 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 five additional elements, the award of which depends on the personal circumstances of the claimant, are: [2]

• child element and disabled child additions (unless an exception applies, a child element will only be allowed for a child born on or after 6 April 2017 where there are less than two children already) [3]

• childcare element

• carer element

• limited capability for both work or work-related activity element (before 3 April 2017 this element applied where the claimant has limited capability for work or work-related activity)

• housing costs element (applicable to tenants, licensees and owner-occupiers).

For further information on the housing costs element, see Housing costs under universal credit.

Universal credit will be worked out by working out the:

• maximum universal credit; this is the total of the elements that the claimant qualifies for. See 'Components of universal credit' above

• deductions; this is worked out using both the claimant's earned and unearned income, capital, and by reference to the benefit cap (see below) when appropriate.

Income from certain benefits and other payments is defined in the regulations as 'unearned income'. [4] 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, his/her universal credit will be reduced on a pound-for-pound basis. [5]

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.

A claimant with capital of over £16,000 will not be entitled to claim universal credit. Capital below £6,000 is ignored. Any capital between £6,000 and £16,000 will be subject to a 'tariff income'. This means that it will be assumed to yield income at the rate of £4.35 per month for each £250 (or part thereof) over £6,000 whether or not it does. [6] 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. [7] Some kinds of capital are disregarded. [8]

Applicants who are responsible for children and/or have limited capability for work are entitled to a 'work allowance'. [9] A 'lower work allowance' is paid when an applicant has housing costs, and a higher work allowance where s/he does not (perhaps if s/he is staying with friends). [10]This means that when their universal credit is calculated, the income taken into account will be their actual income minus the work allowance. A person claiming universal credit but who also receives housing benefit because s/he is in temporary accommodation will only benefit from the lower work allowance. [11]

Where an applicant does not have children or limited capability for work, all of their income will be taken into account. [12]

Where the claimant has earnings above her/his work allowance (or any earnings if no work allowance applies) a taper will apply and 63 pence will be taken into account for every net additional pound earned. [13]

Earned income and the assessment period

The general rule is that earned income for an assessment period should be equivalent to the action amount received during that period.

However, it has been 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 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 to that period. [14]

Other execptions 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 the page income for universal credit from the Revenue Benefits website.

Subject to the benefit cap (see below), the universal credit amount paid will be maximum universal credit minus income as determined above. [15]

The 'benefit cap' is the maximum amount of welfare benefits that a working age claimant and her/his household can receive. The cap applies to claimants in receipt of universal credit. [16]

For details of the benefit cap, including details of those who are exempt, see Benefit cap.