Universal credit: Calculating universal credit

This section of the site takes you through the steps needed to calculate Universal Credit entitlement.

Assessment periods
Step 1: Calculate the maximum amount
Step 2: Calculate earned income
Step 3: Calculate unearned income
Step 4: Deduct income from maximum amount
Step 5: Benefit cap
Step 6: Transitional protection

Assessment periods

The amount of UC that a claimant is entitled to is calculated over a monthly assessment period. An assessment period begins on the first day of entitlement to UC and lasts for one calendar month.

Each subsequent assessment period begins on the same day of month with two exceptions:

Example

Jack makes his first claim for UC on 18 September. His first monthly assessment period starts on the 18 (the first day of entitlement) and runs up to and including 17 October. His second assessment period starts on the 18 October and runs up to and including 17 November.

Step 1: Calculate the maximum amount

Universal Credit is made up of several elements which are added together to reach a maximum amount which is then adjusted or tapered to reflect any relevant household income, capital etc. The benefit cap will then be applied, where relevant, and the remaining  tapered amount is then paid to the claimant on a monthly basis.

All awards will include the appropriate standard allowance, which is dependent on the age of the claimant(s) and whether it is a joint or single claim.

Then an amount is added for each of the elements that apply to the circumstances during the monthly award period. Advisers should note that some elements cannot be paid together, even if the claimant meets the criteria.

This gives the ‘maximum amount’

Step 2: Calculate earned income

Earned income is as defined in the Universal Credit Regulations 2013. You can find more in our what is income section.

In joint claims, it is the combined income of both members of the couple that is relevant.

Once you have determined what the claimant’s earned income (or their joint earned income in a couple claim) you must then deduct the correct ‘work allowance’ for their circumstances. Any income or earnings below the work allowance level are effectively ignored as they are covered in full by the work allowance.

Work Allowance

The amount of reduction depends on the household circumstances and varies according to whether the claimant (or either claimant in a joint claim) has children and/or is eligible for the housing costs element).

If the housing element is included in the maximum amount, then the lower work allowance applies, if housing element is not included, then the higher work allowance applies. Changes announced in the July 2015 Budget reduced the value of work allowances from April 2016 onwards and remove work allowances altogether from claimants with no limited capability for work and no children.

The following table sets out the different work allowances:

 

Higher Work Allowance

Lower Work Allowance

 

Single claimant

 

2016-17

2017-18

2016-17

2017-18

Not responsible for a child/qualifying young person

nil

nil

nil

nil

Responsible for 1 or more children/qualifying young people

£397

£397

£192

£192

Has limited capability for work

£397

£397

£192

£192

 

Joint claimants

 

 

 

Neither responsible for a child/qualifying young person

nil

nil

nil

nil

Responsible for 1 or more children/qualifying young people

£397

 

£397

£192

 

£192

One or both have limited capability for work

£397

£397

£192

£192

 

Applying the taper

A taper of 63% (65% prior to April 2017) must then be applied to any earned income that is remaining after the work allowance has been deducted. This means that for each £1 of income over work allowance, the maximum amount of UC is reduced by 63p.

The amount left is the ‘earned income’ that is carried to Step 4.

Example

Julia has one child and claims UC. Her earned income is £1,000 per month. She has no housing costs. Julia is therefore entitled to a higher work allowance of £397. Her earned income calculation will be:

Earned income:     

 £1,000

Less work allowance:       

(£397)

Difference 

£603

Apply 63% taper (£603 x 63%)  

£379.89

£379.89 of Julia’s income will be taken into account as earned income for UC and will reduce her maximum amount (see Step 4)

Step 3: Calculate unearned income

Unearned income is also defined in the Universal Credit Regulations 2013. You can find out more about what constitutes unearned income in our what is income section.

Unearned income also includes any tariff income from capital.

With unearned income, unless the income source is specifically ignored it will be taken into account in full and reduce UC £1 for £1.

Step 4: Deduct income from maximum amount

From the maximum amount calculated under Step 1, the earned income calculated under Step 2 and the unearned income (including tariff income from capital) under step 3 must be deducted. This gives the UC entitlement.

Step 5: Benefit cap

This is the maximum monthly amount a household a can receive from certain benefits. There are several exceptions to the Benefit Cap rules which means it doesn’t always apply. See Benefit Cap section.

The Benefit Cap is currently (2017/18) set at:

If the Benefit Cap applies, the amount of Universal Credit award under Step 4 is reduced by the excess amount.

Firstly, the amount of excess must be calculated. This is the amount that the UC entitlement (plus any of the other benefits included in the benefits cap) exceeds the benefit cap minus any amount included in the award for childcare costs. This ensures that childcare costs are protected from the cap. No reduction is applied if the childcare costs exceed the excess amount.

Step 6: Transitional protection

Some people who are ‘managed migrated’ (moved by DWP) to UC will be given transitional protection. This ensures that they do not lose out in cash terms at the point of transfer from the old benefit to UC.

Where this does apply, an extra amount is added to the claimant’s UC. The comparison that is done is between the claimant’s total monthly benefit and tax credits income at the point of transfer and the amount of UC entitlement after the benefit cap is applied to both the previous benefits and UC. If the UC amount is lower, a transitional protection amount will be added to UC. See our transitional protection section for more information.
 

Last reviewed/updated 29 August 2017