Universal Credit promises to make you better off in work. It is ‘tapered’ and as you start earning, it reduces by 55p for every pound you make elsewhere. People looking after children, or those who have limited ability to work, may get an allowance before anything is deducted. If this applies, the tables below show how much you can earn each month without it affecting your UC payment.
Work allowances apply if a claimant either cares for at least one child (or dependent, ‘qualifying,’ young person) or has limited capability for work.
For joint claimants, where partners are both on UC, only one can claim the work allowance. The level is the same as for a single claimant.
The work allowance is usually changed each April – you can see the latest allowances online at qimag.uk/ucallowance.
HIGHER WORK ALLOWANCE (if you don’t get housing support) £557 per month
LOWER WORK ALLOWANCE (if your UC includes housing support) £335 per month
Work it out
This can be complicated, and the allowances may change, so talk it through with an adviser. But you can also use a free online Benefits Calculator, like this one on the Quids in! website, to see how much better off you would be as your earnings increase.
Sam is a single parent with two kids. Her monthly UC payments were £1,500 to cover everything including rent but she’s just got herself a job and is now earning £1,200. On the old system, she’d keep her wages but have almost the same amount deducted from benefits.
With UC, she can earn £335 (the lower work allowance) before her benefit is cut. So subtracting £335 from her £1,200 pay leaves £865. The taper rate of 55p in the pound is applied to this (55p x 865), coming to £475.75, which is then subtracted from her UC payment. (£1,500 minus £475.75, leaving her with £1,024.25).
So Sam keeps all of her £1,200 salary, plus her amended UC of £1,024.25. That gives her a total of £2,224.25. (She’s £724.25 better off.)
Universal Credit and self-employment
If we’re self-employed, Universal Credit is slightly different. The amount we get paid will be based on either our monthly earnings or, since August 2021, something called the “minimum income floor”.
The minimum income floor is the amount we’re expected to earn each month – it’s important to bear in mind however that this may not be the same as what we actually earn.
But 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 based on the National Minimum Wage and the number of hours we have agreed to work (this is written down in our “claimant commitment”). It’s important to be realistic about how many hours we think we’ll be able to work.
The minimum wage (if we’re over 23) is £8.91 an hour (£9.50 from 1 April 2022). We multiply that by our weekly work hours then multiply this by 52. Finally, we divide that by 12 to get the monthly total. That’s our minimum income floor and affects how much UC we get.
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.