The Universal Credit
- The impact?
- What constitutes the Universal Credit?
- What is abolished?
- Who can claim?
- What about income disregards and taper?
- What will the UC pay?
- How does this impact the self-employed?
- Receiving payments
- National Insurance
- What are the conditions for claims?
Universal Credit (UC) is set to finally replace existing benefits and Working Tax Credits by 2022. When UC is finally introduced some benefits will disappear completely while other benefits will stay but the rules about who can claimthem will change. A few benefits will continue to exist as they are now.
UC seeks to improve work incentives through a combination of earnings disregards and lower benefit withdrawal rates. It is also expected to smooth the transitions in and out of work. Merging the income-related jobseeker's allowance, housing benefit, the child tax credit, the working tax credit, and income-related employment support allowance into a single universal payment will also reduce the complexities and costs of the current multi-benefit system. Payments are made monthly in a single payment covering all benefits that it replaces.
The UC is a means-tested benefit for anyone of working age. The upper age limit is set at qualification for the Pension Credit. The UC is not intended to be an in-work or out-of-work benefit but it is fundamentally a single credit irrespective of the claimant's employment status. UC aims to make it easier to manage the change from unemployment to employment since people won't need to keep changing from one benefit to another as their income circumstances change.
From 2017, UC will gradually replace many existing benefits and tax credits.
The UC will, in time, see the end of a number of individual benefits. These include:
- Income support
- Income-based job seeker's allowance
- Income-related employment and support allowance
- Housing benefit
- Child tax credit and the working tax credit
- Some social fund payments
Not all separate benefits are to vanish, though. Ongoing will be: the contribution-based jobseeker's allowance; the contributory employment and support allowance; child benefit; the carer's allowance; bereavement allowance; maternity allowance; statutory maternity, paternity and adoption pay; statutory sick pay; the personal independence payment; the industrial injuries disablement allowance; and cold weather payments.
There are a number of provisions in the Act which determine who may claim the UC.
Single people or members of a couple together can make a claim. To qualify you will need to be at least 18 years of age and under the age that entitles you to the Pension Credit. In the case of couples, where one partner reaches the Pension Credit age before the other, the pair must continue to claim the UC until both have reached the threshold for the Pension Credit.
There are no changes to the regulations on capital as they apply to those on income support. In other words, people with savings above £16,000 will be excluded from the UC.
However, some income is to be disregarded. A disregard is the sum of money a person can earn before their benefit is gradually reduced or stopped altogether. The UC sees earnings disregards based on individual needs. For example: a couple with children enjoys a higher disregard than a couple without children.
The disregards for the UC include the disability living allowance and the personal independence payment. Other sources of income, such as workplace and personal pensions, are taken into account when calculating any UC entitlement.
Different amounts are disregarded from earnings to accommodate the circumstances of different individuals and families. The level of the disregards are determined by future rules, but initially, a couple will have the disregard set at £3,000 per household (or £5,700 per household if they have children); at £7,700 for a single parent; at £7,000 per household if the claimant or their partner is disabled.
The amount of earnings that can be disregarded are curtailed according to the level of housing costs included in the UC. The intention is to reduce earnings disregards by one-and-a-half-times the claimant's eligible housing costs.
The rate at which benefits are reduced is measured by a taper rate.
The UC has just the one taper rate of 65%. That means earnings above the set disregard are subtracted from UC benefits at a rate of 65% (for every pound of additional income earned after tax and national insurance). So claimants retain 35p in the pound for every pound above the disregard.
Claims are made on a household basis rather than on an individual basis. The sum awarded is calculated according to the income and circumstances of all of the members of the household. The Government has committed itself to ensuring that no one, whose circumstances have not changed, is worse off when they are transferred to the UC.
There is a basic allowance with different rates for single people and couples.
As well as providing personal sums for individual claimants and for couples, the UC provides extra amounts intended to cover children, paid on top of child benefit, and childcare, paid as a percentage of the costs of registered childcare and mirroring the childcare element of the working tax credit. There will be additional payments for disabled children.
Additional amounts are also paid to those who have a limited physical ability to work, and to those who have regular and substantial caring responsibilities for someone with severe disabilities.
For anyone who rents their home, housing benefit is calculated in roughly the same way that housing benefit is calculated. Except that, under the UC, the payment goes directly to the claimant rather than the landlord. For people with mortgages, there are no changes to the way in which support is given in housing costs (with the proviso that mortgage support only applies to those out of work).
The maximum claim is limited by a cap based on median net earnings for a working family. The cap is calculated according to the claims made, but is of the order of £500 per week.
There are, though, exceptions to the cap. These include; households in which someone is in receipt of the disability living allowance (or personal independence payment); people with a limited capacity for work; war widows; working families meeting the requirements for Working Tax Credit; the newly unemployed.
Any self-employed person who applies for the UC may find themselves to be assumed to be on an income the equivalent to full-time earnings at the rate of the national minimum wage.
The self employed are required to report their income after tax and NICs on a monthly basis, to the date of claim. So a person who claims UC on 15 June will report income every month to 14th of the month. Reporting of income is done online, as are other aspects of UC.
The income is reported on a cash basis, but losses (net cash outflows) are disregarded unless the business is in its start-up period of 12 months. Instead the minimum wage is substituted for any month in which the claimant reports income of lower than this amount. This is known as the minimum income floor.
This presents serious practical difficulties for all businesses, but particularly retail or other businesses carrying stock. When the business purchases stock but sells it in a subsequent month it is likely that the purchase will depress profits on a cash basis. The claimant would therefore be assessed based on minimum wage rates. When selling that stock in a subsequent period, there will be no cost of sales to set against the turnover, inflating reported profits.
DWP is in charge of administering the UC. It is intended that the vast majority of claims will be made and handled online. The UC will access the HMRC 'real-time' information system to measure the level of earnings of any claimant. Payments of the UC are paid monthly, and transactions are paid directly into claimants' bank accounts.
The old system allows those entitled to income support, the jobseeker's allowance, and employment allowances to receive national insurance credits. The UC will mean a similar eligibility in acquiring contributions to national insurance, though indications are that the principles of the previous regime will continue.
The Government is toughening up the conditions for benefit claimants. Every claimant is expected to sign up to a commitment and will then be placed into a particular group depending on their circumstances and the nature of the claim.
These groups are: those with no work-related needs (such as disabilities, or caring responsibilities for children aged under one or for a severely disabled adult); those who will be asked to attend work-related interviews (such as single parents with a child aged over one but below a set schooling or pre-schooling age); those with a limited ability to return to work who will be asked to ready themselves for work by attending skills classes, or taking part in training or work placements; and those who will be required to look for work - sending in applications and registering with employment agencies - as they would be expected to do under the current jobseeker's allowance benefit.
Extra qualifying conditions exist for every claimant in each of the groups.