Universal credit: RTI and Universal Credit

What is Real Time Information?
What must be reported?
How does an employer report RTI information?
Exceptions to RTI
Why is RTI important for UC?
What is the general rule for use of RTI information in UC?
Exceptions to the general rule
Re-allocation of reported payments

Consequential amendments
Two pays in one assessment period issue
New UC claimants
Challenging UC decisions about RTI earnings in an assessment period

What is Real Time Information?

Becoming an employer comes with certain obligations in respect of tax and national insurance. Generally employers are tasked with collecting tax and national insurance from their employees pay and sending that money to HM Revenue and Customs (HMRC).

In the past, HMRC required employers to send payments of tax and NI to them frequently and then report those figures after the end of each tax year on a series of forms.

On 6 April 2013, HMRC introduced a new system of real time reporting for employers. It is often called the RTI (Real Time Information) system.

It means that employers must send details to HMRC at the time they pay their employees. This information must be sent to HMRC electronically as part of their routine payroll process.

What must be reported?

Employers must report payroll information to HMRC for each pay period. This includes the employees pay, tax and deductions. Employers will need to report details of all employees on the payroll in the pay period, no matter how much they are paid and how often they are paid (for example once a year). It also includes employees who do not receive any pay in the period.

(However if ALL employees are paid below the NIC Lower Earnings Limit of £120 per week AND that employment is their only job an employer will not strictly have to register a PAYE “scheme” and thus no RTI submissions will be due). More information is available on the GOV.UK website.

How does an employer report RTI information?

Employers will need to send submissions to HMRC. There are two types of submission – an FPS (Full payment submission) and EPS (Employer payment summary).

Under the legislation, an FPS must be sent to HMRC on or before the date of payment to the employee (although there are limited exceptions to this when it can be sent later).

HMRC do allow departure from the strict rules in the legislation in certain cases such as when the regular date for payment falls on a non-banking day and(usually,) where employers have paid early due to Christmas. Further details can be found in Section 1.8 HMRC guidance, which states that where a regular payday falls on a non-banking day (Saturday, Sunday or bank holiday) and, because of this, payment is made on the last working day before the regular payday or next working day after the regular payday, the date reported on the FPS submission should be the contractual pay date instead of the date the person was actually paid. This can be important for UC claimants as explained below.

The FPS submission records the year to date figures of tax, national insurance and pay and also the totals for that particular pay period, as well as the payment date.

The EPS submission is used when employers need to recover statutory payments (such as sick pay, maternity pay etc.) and are also used if there is a nil payment due for the month (as no FPS submission will be made).

The FPS submission will include a great deal of information about the employee including the range of hours they work. You can find out the full details included in an FPS on the GOV.UK website.

Exceptions to RTI

Some care and support employers are able to submit PAYE information to HMRC using paper rather than online. They must contact HMRC if they want, or need, to do this.

If an employer is "digitally excluded", that is that they are unable for whatever reason to access the internet and do things online they can ask HMRC for permission to continue with paper filing.

Certain religious groups, whose beliefs are incompatible with the use of electronic methods of communication may also be exempt from online filing requirements.

More information is available on the GOV.UK website.

Why is RTI important for UC?

Regulation 61 of the UC Regulations 2013, as amended, sets out how RTI information is used in UC. Regulation 61 was substantially amended in 2014 (SI 2888/2014) and again in 2020 (SI 1138/2020).

Under Regulation 61, a UC claimant must provide any information that DWP may require for the purposes of calculating their earned income. This will normally require the claimant to report their earnings (employed and/or self-employed) through their UC account after the end of each assessment period.

However, this rule does not apply if the UC claimant is employed and their employer is a ‘real time information employer’. A Real Time Information Employer has the same meaning as in Regulation 2A of the PAYE Regulations

Where the employer is a ‘real time information employer’, the UC regulations direct DWP to use RTI data, received from HMRC, about a claimant’s employed earnings to adjust UC awards for each assessment period. In other words, the RTI earnings data takes precedence over any earnings information reported by the claimant in this situation.

Where the employer is not a RTI employer, the claimant must provide earnings information to DWP directly. Note that if the employer is a RTI employer, but no RTI earnings information is received by DWP in a particular assessment period, earnings are treated as nil initially. In such a case it is not clear whether DWP will ask the claimant to declare their earnings or whether any of the provisions below might apply.   

What is the general rule for use of RTI information in UC?

The general rule is that where a claimant is, or has been, engaged in an employment in respect of which their employer is a ‘real time information employer’:

The amount of their employed earnings for that assessment period is to be based on the information which is reported to HMRC for PAYE purposes and is received by the Secretary of State from HMRC in that assessment period
Where no information is received in an assessment period from a real time information employer  - the amount of earnings is to be treated as nil.

The key word in the legislation is ‘received’. Data is transferred from HMRC to DWP 4 times each day (around 3am the first time and 9pm the last time). The system essentially checks to see if any new RTI submissions for UC claimants have arrived with that day as the ‘payment date’ (in box 43 of the FPS submission – this may be the actual payment date or the contractual pay date, depending on how the FPS has been completed). Any late RTI submissions will also be sent over (those where the date in box 43 has already gone by).

The most important point to note is that DWP use the date the RTI information is received by them to determine which assessment period to put the payment into in the first instance, but see below for when payments can be reallocated.

Example 1

Zavier is employed. He is usually paid on the 28th of each month. His UC assessment period runs from 20th of one month to the 19th of the next. Zavier is paid on 28 May and his employer sends an FPS submission to HMRC on the same date. Zavier’s contractual pay date and actual payment date are the same (28 May). The information is received by HMRC and transferred to DWP on the next data transfer. As DWP receive the information on 28 May, it is taken into account for Zavier’s assessment period from 20 May to 19 June.

However, the fact the data is sent four times a day, with the last time around 9pm can lead to some problems:

a) Assume that Zavier’s employer sent the FPS submission to HMRC at 10pm on 28 May. That means the information would not be sent to DWP until 29 May and so received by them on 29 May. In Zavier’s case it would make no difference and would still fall into the assessment period from 20 May to 19 June.

But what if Zavier had a different assessment period running from the 29th of one month to the 28th of the next?

b) During the period 29 April to 28 May, Zavier is paid once – on 28 May. His employer sends the FPS submission the same day that they pay Zavier but it isn’t sent until 10pm. As a result, it is not passed to DWP until the following day – the 29 May.

This means that Zavier’s UC award for the period 29 April to 28 May is calculated with no earnings, because no data was received by DWP in that period. For the period 29 May to 28 June, two sets of earnings are potentially taken into account (the one paid to to Zavier on 28 May but data received by DWP on 29 May and the other his usual pay paid on 26 June (early as the 28 falls on a weekend).

Zavier may also encounter a problem of having two pays [SW1] counted in one assessment period if his contractual pay date falls on a weekend and his employer pays him early and puts the earlier date on the FPS submission to HMRC. A similar issue can occur if employers pay early at Christmas and put the actual date of payment on the submission. That is why HMRC have issued guidance to employers which states they should put the contractual pay date on FPS submissions in these scenarios, rather than the actual pay date. If employers follow this guidance the problem should not arise in these circumstances.

We talk more about this two pays in one assessment period issue below.  

Exceptions to the general rule

There are three exceptions where the general rule, directing DWP to use RTI data from HMRC as the person’s earnings for the assessment period, does not apply.

Regulation 61(3) Universal Credit Regulations 2013 (as amended), states the general rule does not apply:

  1. Where, in respect of a particular employment, the Secretary of State considers that the employer is unlikely to report information to HMRC in a sufficiently accurate or timely manner;
  2. Where DWP considers that the information received from HMRC is incorrect, or fails to reflect the definition of employed earnings in the UC regulations, in some material respect; or
  3. Where no information is received from HMRC in an assessment period and DWP consider this is likely to be because of a failure to report information (this includes the failure of a computer system operated by HMRC, the employer or any other person).

Where any of these exceptions apply, DWP must make a decision as to the amount of the person’s employed earnings for the assessment period in accordance with the UC regulations using such information or evidence as the DWP thinks fit.

It is not clear how DWP operate these rules in practice and in most cases the RTI information seems to override other considerations. There is a RTI dispute team which involves HMRC and DWP, but it is not clear to what extent they apply the exceptions above.

Where a claimant thinks the amount of earnings taken into account is incorrect or not following the legislation, it is open to them to ask for a mandatory reconsideration as the first stage of the appeals process. See the section below on challenging UC decisions

Case law

The exceptions in Regulation 61(3) were considered in CUC/166/2017. Note however that Regulation 61 was substantially amended in November 2020 and although the exceptions remain in the current version of Regulation 61, some of the consequential powers relating to the exceptions have been removed.

In this particular case, the claimant’s assessment period ran from 1st of each calendar month. In February 2016, the RTI feed showed earnings on 1st and 29th. The claimant was actually paid on 31 January for her work during January, but it was not reported by her employer to HMRC until 1 February (one day late) and therefore that is the date that DWP used as the date of receipt for UC purposes. The effect of this was that two sets of earnings were taken into account in one assessment period.

The DWP’s initial submission in the case stated that:

The earnings reported under RTI fell to be taken into account in the assessment period in which the information was received by the Secretary of State.
Regulation 61(3) could only apply if the information received was ‘unlikely to be sufficiently accurate or timely’. DWP argued that a single RTI report, late by one day, did not satisfy this test.
None of the other provisions in 61(3) applied

However, the DWP then withdrew the appeal before the Upper Tribunal on the basis that they concluded that the case could be brought within the exception in Universal Credit Regulations 2013 (UC Regs), regulation 61(3)(b)(i) as the reporting by the employer after the date on which the payment was actually made can be considered a failure by the employer.

This is an interesting case, however it didn’t go into detail regarding the employer’s failure. In reality, where a pay date falls on a Sunday (as it did in this case), HMRC guidance allows employers to report the following day, but they are directed to still use the contractual pay date[SW1]  in their submission. This would have avoided the issue from arising. The other point that isn’t explored is that even if the employer sends the submission in on the correct day, it can end up in the wrong assessment period if sent late in the evening as the information won’t be transferred to DWP until the following day.

Reallocation of reported payments

Regulation 61 was substantially changed from 16 November 2020. One of the major changes to the Regulation was the addition of powers which allow DWP to reallocate RTI reported payments from one assessment period to another. Re-allocation is possible in two cases:

Payments reported late or in the wrong assessment period

Under Regulation 61(5)(a) where it appears to the Secretary of State that a payment of employed earnings has been reported late, or otherwise reported in the wrong assessment period, the Secretary of State may determine that the payment is to be treated as employed earnings in the assessment period in which it was received.

It appears that this would apply in a case where an employer sends their FPS submission late, such that it is received by DWP in a later assessment period. The DWP ADM memo, which provides guidance on the regulation changes from November 2020, includes the following example:

Danielle has an AP that runs from the 25th day of each month to the 24th day of the following month. Danielle’s employer regularly pays her on the 20th day of each month. Danielle’s employer paid her as usual on 20.2.21 but was involved in an accident and did not complete the RTI return until 25.2.21. Danielle received her next payment of salary on 20.3.21. The DM determined that the 20.2.21 was reported late and is to be treated as employed earnings in the AP in which it was paid.

It may also apply in a case where an employer reports after 9pm which means the payment ends up in the next assessment period (as in Example 1b Zavier above).

It is not clear whether it also extends to help those who are paid weekly, fortnightly or four-weekly whose employers report pay early (due to a weekend for example and where they do not follow the HMRC guidance to use contractual pay date) such that they end up with more payments taken into account. Such claimants will naturally have some assessment periods where they have more payments than usual taken into account because of their payment frequency, but in other periods where some action by their employer results in an issue with the UC awards, it is certainly arguable that this scenario is covered under this part of the Regulation. 

Two pays in one assessment period for monthly paid claimants

Under Regulation 61(6), of the Universal Credit Regulations (as amended) where a person is engaged in an employment where they are paid on a regular monthly basis and more than one payment in relation to that employment is reported in the same assessment period, the Secretary of State may, for the purposes of maintaining a regular pattern, determine that one of those payments is to be treated as employed earnings in respect of a different assessment period.

This part of the regulation attempts to address the problem of two pays in one assessment period but only for monthly paid claimants. It does not help those, for example, who are paid four weekly and will routinely receive two pays in one assessment period but see above for whether the other re-allocation provision may help people paid weekly, fortnightly or four-weekly who are otherwise affected by the way their employer has reported a specific set of earnings. [JB3] 

Requesting reallocation of payments

It is important to understand that the UC IT system follows the general rule and therefore in the first instance, DWP will continue to allocate earnings information to assessment periods based on the date they receive the information from HMRC. That is the default position.

The reallocation provisions allow DWP to then move the reported payments to either the assessment period in which the payment was actually received (in respect of late or wrongly reported payments) OR to a different assessment period (in the case of two pays in one assessment period for monthly paid claimants).

Our understanding is that this is not an automatic process and claimants will need to ask DWP to reallocate payments. Note that it is sometimes beneficial to leave two payments in one assessment period rather than reallocate them (see below for further discussion of this point).  

We understand the following about the process from DWP:

As part of the development of processes to handle this issue, DWP are also gathering more information at the new claims stage about the frequency of earnings payments to help them identify early any claimants who may be affected by this feature. It is not clear whether this means DWP will reallocate payments in future, without a request from the claimant. 

DWP are introducing this process from November 2020 while it is still in development on a test and learn approach. CPAG have published more information on their website and are interested in feedback from advisers whose clients have tried to have monthly earnings information re-allocated under these rules.

We understand DWP will not be re-visiting earlier awards in respect of the new process and only claims from 16 November 2020 will be subject to the new rules.

Consequential amendments

Where DWP decides that one of the exceptions to using RTI data applies or they re-allocate payments under the re-allocation rules set out above, they also then have the power to make any other adjustments to the calculation of the person’s employed earnings as may be necessary to avoid duplication or to maintain a regular payment pattern.

 

Two pays in one assessment period

This issue can occur in several situations including:

The first question is whether two pays in one assessment period leads to any negative consequences for the claimant. The answer depends on the facts of the case. It certainly leads to uneven UC payments, even if wages are the same each month. In one month, where no earnings are received, maximum UC will be paid. In the next month, where two pays are taken into account, much less UC will be paid. It can trigger surplus earning rules. It also means the claimant only potentially gets one work allowance against two pays instead of two work allowances (which they would get if each pay fell into a different assessment period).

However, in some cases, the claimant can be better off over a period. This is likely to be people with higher earnings where their earnings (after work allowance & taper) cause their maximum UC award to be reduced by more than 50%.

The most common way for this issue to occur is where an employer pays early because the contractual pay date falls on a weekend or bank holiday. Often, employers will report the actual pay date in their submission to HMRC rather than the contractual pay date and this can lead to DWP receiving RTI data that leads to the two pays in one assessment period problem.

Example 2

Joseph is paid on 15th of each month. The 15th August falls on a Saturday and so his employer pays him on Friday 14th. His employer sends the RTI submission to HMRC before 9pm on the 14th and reports the payment date as the 14th. The information will be sent across to DWP that same day.

Joseph’s assessment periods run from 15th of the month to the 14th of the following month. In his assessment period 15th July to 14th August, Joseph has two pays taken into account. One from his pay on 15th July and another his pay that was paid early on 14th August.

HMRC have issued guidance to employers to try and prevent this situation from happening. The guidance advises employers to use the contractual pay date on their submission to HMRC rather than the actual pay date. In the example above, Joseph’s employer should have used the 15th on his submission to HMRC rather than the actual pay date of the 14th.

HMRC have issued similar guidance in respect of early payments at Christmas. Both pieces of guidance represent temporary easements on the usual RTI reporting requirements for employers.

Johnson case

The Child Poverty Action Group (CPAG) challenged the DWP’s position in cases involving two pays in one assessment period. The case was successful in the High Court and then appealed by DWP. The Court of Appeal ultimately found against DWP (Court of Appeal in Secretary of State for Work and Pensions v Johnson and Others [2020] EWCA Civ 778). As a result, DWP introduced legislation which allows them to re-allocate earnings to a different assessment period where two monthly salaries are reported in one assessment period, with a view to maintaining a more even pattern. But this rule is only for claimants who are paid monthly by their employers. We explain the re-allocation rules in more detail above.  

The legislation also introduces a rule (Reg 61(5) of the UC Regulations) – not restricted only to monthly paid workers – which allows DWP to re-allocate a salary payment which is reported late or reported in the wrong assessment period, to the assessment period in which the salary is actually received.

The two new provisions should help most people affected by the problem of two pays in one assessment period, except those who encounter the issue because of their pay frequency, for example four-weekly paid workers.

New UC claimants

When claimants leave work and claim UC, the use of RTI data can leave people with lower than expected awards. This happens where someone claims UC after they received their last payment from their employer (and therefore assume it won’t count as income) but their employer reports it on a later date or reports their contractual pay date (as per HMRC’s guidance) which may be after the date of the UC claim.

It is not clear whether the provisions allowing reallocation of payments extend to this situation which requires removing the earnings from the first assessment period so that they do not count at all for UC purposes, rather than re-allocating them to another assessment period or taking them into account in the assessment period actually received.

Challenging UC decisions about RTI earnings in an assessment period

UC decisions carry appeal rights and therefore it is open to a claimant to ask for a mandatory reconsideration of their decision and, if DWP do not change the decision, to ask a First-tier Tribunal to consider the appeal.

If DWP refuse to re-allocate reported earnings payments under the rules outlined above or if one of the exceptions to using RTI data should apply, any challenge should be by way of the mandatory reconsideration/appeals process.

If there is a discrepancy between what the claimant has been paid and the earnings information reported to DWP, the claimant may need to ask DWP to look into that. Where possible, the claimant should double-check with their employer what earnings information they submitted to HMRC and when. This information can also be found in the individual’s Personal Tax Account [VT2] or by phoning HMRC. They can ask for their complaint about earnings information used for their UC award to be escalated and any additional information or evidence the claimant can provide may be helpful with that.

DWP have a back office team, the RTI Dispute team, who look into discrepancies and problems with the earnings information. This team also have access to liaise with HMRC via the JMET (Jointly Managed Engagement Team) if the case requires investigation that is more detailed. This escalation route is outside the appeals process, although it may be advisable for the claimant to ask for a mandatory reconsideration at the same time as asking for their case to be escalated by DWP, to preserve their appeal option if that becomes necessary.

Last reviewed/updated 15 December 2020