Making deductions for earned income

This is step 2 of a manual calculation. Every UC calculation and statement starts off with maximum amount of UC and then deductions are applied to this.

 

Here we look at deductions for earned income. If you (or your partner) do not have any earned income, jump to step 3.

‘Earned income’ is your (and/or your partner’s) wages.  Universal Credit use net earnings from
employment or
profit from self employment. A new calculation is done each and every month,
taking into account what you were paid in wages, after tax and NI and pension.


Earned income includes :

  • Wages (including sick pay)

  • Overtime pay

  • Tips, bonuses and commission

  • Holiday pay (even if owed from before date of UC claim)

  • Tax Rebate

  • Statutory Sick Pay (SSP)

  • Statutory Maternity Pay (SMP)

  • Statutory Adoption Pay (SAP)

  • Statutory Paternity Pay (SPP)

If you are paid any of the above on or after your claim date for UC, they will be included as earned income - even if they relate to a job that has already ended.

UC will work out a deduction for earned income each monthly assessment period based on what you have been paid in wages by looking at what your employer has reported to HMRC. Depending on how often you are paid from work, you may not always have the same amount of wages paid each month. 

If you are paid weekly, you will have some months of 4 wages and some months of 5 wages.

If you are paid fortnightly, you will have ten months of the year with 2 wages and two months of the year with 3 wages.

If you are paid 4-weekly, you will have eleven months of the year with 1 wage and one month of the years with 2 wages.

If you are paid once a month you should only have 1 wage counted by UC each month unless your wage date changes slightly each month (weekends and holidays) and your employer reports on the actual day paid. This could result in 2 wages in one assessment period and 0 wages in another. You can challenge this.

Read more about pay frequency here.

Disregard on earnings

A work allowance is the amount you can earn before UC make deductions to your award based on your earnings and is the same for single and joint claimants and also applies to self-employed people.

If your earnings are more than your work allowance, you will still benefit from the disregard on earnings.

 

If you have children, LCW or LCWRA and have housing cost element as part of your UC claim, your work allowance is £293.

If you children, LCW or LCWRA and do not have housing costs element as part of your UC claim, your allowance is £515.

If you (or your partner) do not have children, LCW or LCWRA on the claim, you have no work allowance.

If you are on a joint claim and entitled to a work allowance, you still only receive one work allowance and it is applied to the total income from your combined earnings.

Deductions for wages

As an income-related benefit, your earnings will be taken into account when calculating your Universal Credit award. To calculate the deduction for wages you can use our handy calculator tool.

It is good to learn how to work this out manually as well. 

 

If you have a work allowance you can calculate the deduction for earnings like this:

Total wages received in assessment period minus work allowance (if applicable) = XXX

XXX multiplied by 0.63 = deduction

Example:

You earn 1000 and have housing element on your UC award so your work allowance is £293.

1000 (earnings) - 293 (work allowance) = 707

707 x 0.63 = 445.41

So £445.41 would be deducted from your total UC award based on your £1000 wages.

 

If you don’t have a work allowance then you can calculate the deduction for earnings like this: 

Total wages received in assessment period multiplied by 0.63 = deduction

Example:

You earn £600 in an assessment period.

600 x 0.63 = 378

So £378 would be deducted from your total UC award based on your £600 wages.

You now have an amount for deduction for earned income. 

This will be deducted off your maximum Universal Credit amount.

Be sure to move onto step 3.