With Universal Credit, we keep what we earn from work and still get benefits, making us hundreds of pounds better off
Universal Credit is meant to make work pay. That means we can usually keep some of what we earn and still get benefits. So, most people are better off when they start working.
How earnings affect Universal Credit
When we start earning, our Universal Credit doesn’t stop straight away. It goes down a bit for each pound we earn.
For most people, their Universal Credit is reduced by 55p for every £1 they earn. This is called the taper rate.
The taper rate only applies while we are still getting Universal Credit. If our income goes up enough that our payments stop completely, the taper rate no longer applies.
To see how our wages might affect our Universal Credit, we can use one of these calculators:
What is the work allowance?
Some people get a work allowance before the 55p rule starts.
We only get a work allowance if we care for at least one child or a dependent young person, or if we have limited ability to work because of illness or disability.
If we live with a partner and both get Universal Credit, only one of us can get the work allowance. The amount is the same as for a single person.
There are two levels:
- Lower work allowance: if our Universal Credit includes help with rent
- Higher work allowance: if it does not include help with rent
Once we earn more than our work allowance, our Universal Credit is cut a bit for every extra pound we earn. We still keep some of our wages, so we are better off in work.
We can check the latest amounts here.
Work it out
This can be complicated, and the allowances may change, so talk it through with an adviser. But we can also use a free online Benefits Calculator, like this one on the Quids in! website, to see how much better off we would be as your earnings increase.
EXAMPLE
Sam is a single parent with two children. She gets Universal Credit to help cover rent and bills.
She starts a new job earning £1,200 a month. Because she gets help with rent, she has a work allowance of around £400. This means she can earn the first £400 without losing any Universal Credit.
After that, for each extra pound she earns, her Universal Credit goes down a bit — but she still keeps most of what she makes.
Under the old benefits system, she would have lost almost the same amount in benefits as she earned in wages. With Universal Credit, she keeps a lot more. Overall, Sam ends up roughly £700 a month better off.
Universal Credit and self-employment
If we’re self-employed, Universal Credit is slightly different.
What we get depends on what we actually earn or on something called the Minimum Income Floor.
The Minimum Income Floor exists to make sure people who are self-employed are treated in a similar way to those in regular jobs. It’s based on the idea that most full-time workers earn at least the National Minimum Wage.
The minimum income floor won’t apply to everyone. However, if being self-employed is our main job and we work regularly, then it may apply.
How is the minimum income floor worked out?
It’s usually worked out using the National Minimum Wage and the number of hours we’ve agreed to work with our work coach.
To get a rough idea of what your Minimum Income Floor might be, multiply your agreed weekly work hours by the National Minimum Wage (find updated rates here), then multiply that by 52 and divide by 12. That gives your estimated monthly figure.
If we earn less than this amount, Universal Credit may still use the higher figure when working out our payment. That means we can get less support in quieter months.
When we first start our business, we usually get a start-up period of up to a year. During that time, Universal Credit uses our real earnings instead of the Minimum Income Floor. It’s designed to give new businesses time to grow.
To keep this support, we need to show our work coach that we’re building our business. After the start-up period, the Minimum Income Floor will usually apply.
Is it fair?
Sometimes, our minimum income floor is more than we earn in reality – so no, it doesn’t always seem fair.
The government may decide not to use the minimum income floor straight away and may use our actual earnings instead. It’s like a grace period and is known as a start-up period. It lasts a year.
We have to show our work coach how we’re growing our business otherwise our start-up period may be stopped early. The minimum income floor would then be used to work out how much UC we receive.
Image: Wavebreak Media / Shutterstock
Updated September 2024
