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?
Exceptions to the general rule
Two pays in one assessment period issue
New UC claimants
Challenging decisions about RTI earnings
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.
Employers must report payroll information to HMRC. This includes the employees pay, tax and deductions. Employers will need to report details of all employees they pay, no matter how much they are paid and how often they are paid (for example once a year).
(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.
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, 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, for the last two years where employers have paid early due to Christmas. Section 1.8 HMRC guidance 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.
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.
Some care and support employers are able to submit PAYE information to HMRC using paper rather than online. They must to 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 to 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.
HMRC send the data that they receive from employers to DWP. This enables DWP to use RTI data about a claimant’s employed earnings to adjust UC awards each month
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). 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.
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:
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?
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)
We talk more about this two pays in one assessment period issue below.
Under Regulation 61(3) Universal Credit Regulations 2013 (as amended), the general rule does not apply:
- In respect of a particular employment where the Secretary of State considers that the information from the employer is unlikely to be sufficiently accurate or timely or
- In respect of any assessment period where:
- No information is received from HMRC 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); or
- 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
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.
When this is done, DWP can treat a payment of employed earnings received by the person in one assessment period as received in a later assessment period. This might happen where DWP have received the information in that later period or would, if RTI had worked correctly, have expected to receive information from HMRC in that later period.
If the same earnings are then notified at another point by HMRC after they have already been taken into account due to the operation of these exceptions, the regulations allow DWP to ignore the HMRC information.
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.
The exceptions in Regulation 61(3) were considered in CUC/166/2017. In this particular case, the claimant’s assessment period ran from 1 of each calendar month. In February 2016, the RTI feed showed earnings on 1st and 29th. 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, and on the surface certainly opens up the possibility of challenge in cases involving two pays in one assessment period, however the case 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 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.
The problem of two pays in one assessment period can occur in several situations including:
- For those who are paid four weekly, the issue will arise once every year (as explained on the GOV.UK website)
- Where employers send information to HMRC after 9pm that is received by DWP the following day (see example above)
- Where an employer pays someone on a different day (usually early) because their normal contractual pay date falls on a weekend or bank holiday. A similar situation can occur at Christmas, where employers shut down and pay staff several days earlier than usual.
- Where a claimant has an assessment period that starts at the end of the month which means that special assessment period rules apply and this coincides with their pay schedule from their employer.
The first issue 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 also 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. 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 which can cause the two pays in one assessment period problem.
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
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.
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.
We discussed above the potential challenge using Regulation 61(3).
The Child Poverty Action Group (CPAG) have challenged the DWP’s position in cases involving two pays in one assessment period. The case was successful in the High Court, but DWP have appealed to the Court of Appeal and the outcome of that decision is awaited.
The Johnson case involved appellants in a similar situation to Joseph in the example above. If the employers had followed HMRC’s guidance, in at least a couple of those cases, the issue would not have arisen. The High Court decided the case in favour of the claimants, albeit on a different basis to that advanced by them and found that the DWP had been incorrectly interpreting her own regulations regarding "earned income" (namely regulation 54 Universal Credit Regulations 2013), and "wrongly assumed that where salaries for two different months were received during the same assessment period, the combined salaries from the two months were to be treated as earned income in respect of that assessment period."
The CPAG website has a mandatory reconsideration template for use in similar cases.
Last reviewed/updated 16 June 2020