Surplus Earnings

Coronavirus: Universal Credit - Surplus Earnings

Universal Credit - Surplus Earnings

The Universal Credit ‘surplus earnings’ rules may affect some Universal Credit claimants if they receive a very large payment of earnings from work which reduces their UC award to nil - this includes those self-employed workers receiving a grant from the Self-Employed Income Support Scheme.

These rules are quite complex, but basically mean that a Universal Credit claimant whose earnings are too high to entitle them to Universal Credit in an Assessment Period, will, in certain circumstances, have some of those earnings taken into account when their Universal Credit is reassessed (for a maximum of 5 Assessment Periods). In other words the DWP feel that the claimant should use some of that large payment to support themselves in future months ie some of those earnings are 'surplus' to their requirements in the Assessment Period received and should be carried forward to future Assessment Periods.

The level of earnings that 'trigger' the Surplus Earnings rule to kick in are currently set at quite a high level (see note 2 below for future changes) - this means that only a small number of claimants who receive a large payment of earnings will be affected by the Surplus Earnings rule.

Surplus Earnings arise when the claimant's earnings in any Assessment Period are £2500 more than the amount that would take them off UC- the claimant's 'relevant threshold'. The exact level of earnings will be different for different claimants and dependent upon their personal circumstances.

Any 'Surplus Earnings' a claimant is deemed to have in one Assessment Period is added to any other earnings when working out whether or not they are entitled to Universal Credit in the next Assessment Period.

Currently claimants receive very little information notifying them that they are affected by the Surplus Earnings rules. They receive a message stating that their current payments have stopped, which includes a sentence that says 'We will carry forward the £x,xxx as earnings when we work out your future payments'.

Please watch the video below for more information, and the example below to see how it works.

NOTE 1: The SEISS grant can be offset by allowable expenses paid in the claimant's Assessment Period (including Tax and NI) as well as any accumulated losses (assuming these have been reported to the DWP).

Making sure the UC award kicks back in when entitled again

Up until 21st May 2020 a Universal Credit claimant would have had to have made a reclaim for Universal Credit after their Universal Credit award dropped to nil due to earnings, but the DWP changed the rules and this is no longer the case. Instead the DWP will continue to assess the claimant's entitlement for a maximum of 5 Assessment Periods (although a self-employed claimant will need to provide details of their income and allowable expenses to enable the DWP to do this assessment).

Where someone has had the Surplus Earnings Rule applied

If a claimant has been affected by the Surplus Earnings Rules:

They should:

Check that the Surplus Earnings rules do apply in their case ie that their UC award reduced to nil due to earnings and no other reason.
Check that they have been worked out correctly (ie ignored any unearned income, and check what has been classed as earnings).
Continue to reclaim Universal Credit as long as this erodes the surplus earnings figure - although the DWP should treat them as making a new claim due to Regulations* introduced on 21st May, these Regulations use the expression 'may' so the DWP have the discretion not to apply them to all claimants.

* The Universal Credit (Coronarirus) (Self-employed Claimants and Reclaims) (Amendment) Regulations 2020

NOTE 2: The level at which a claimant will be deemed to have 'Surplus Earnings' has been deliberately set at a high figure in order to limit the number of cases affected and to enable the DWP to test and learn from the new arrangements - this has been extended until 31st March 2022.

Universal Credit - Surplus Earnings Rules

Example of Surplus Earnings and SEISS grant

Example:

Alan is a self-employed bathroom and kitchen fitter. He lives alone in a rented flat. His worked has dropped off due to the Coronavirus outbreak and work dried up altogether in January 2021. He has been living off his savings.

When his savings had nearly run out he sought advice and made a claim for Universal Credit on 16 February 2021.

He made an application for the Self Employed Income Support Scheme on 30th April and receives his SEISS payment on 8th May.

His UC is calculated as follows:

MAP 16 February – 15 March

He reports no s/e income but reports losses of £250 (vehicle service, MOT, insurance etc)

His UC award is calculated as follows – £411.51 standard allowance + housing cost element £450 = £859.89 Maximum UC

Assessable income = nil

Less deduction to recover new claim advance £50

UC payment = £809.89

MAP 16 March – 15 April

He reports no s/e income but reports losses of £50 (insurance)

His UC award is calculated as follows –£411.51 standard allowance + housing cost element £450 = £859.89 Maximum UC

Assessable income = nil

Less deduction to recover new claim advance £50

UC payment = £809.89

MAP 16 April – 15 May

He receives a SEISS payment of £4800 on 8th May

He reports s/e losses of £50

His UC award is calculated as follows – £411.51 standard allowance + housing cost element £450 = £859.89 Maximum UC

Assessable income = £4800 minus losses for this MAP and unused losses for previous MAPs of £350 = £4450 x 63% = £2803.50

UC payment= nil

MAP 16 May – 15 June

The DWP treat Alan as making a new claim for UC.

He reports no s/e income but reports losses of £50 (insurance etc)

His UC award is calculated as follows –£411.51 standard allowance + housing cost element £450 = £859.89 Maximum UC

Although there is no s/e income reported in this MAP, Alan has ‘surplus earnings’ of £585.10 which are carried over from the previous MAP (see below how this is calculated).

The losses for this month are offset against the surplus earnings – bringing the earned income figure down to £535.10

£535.10 x 63% = £337.11

Max UC £859.89 minus earned income £337.11

Less deduction to recover new claim advance £50

UC payment = £472.78

Surplus earnings calculation

Alan had ‘surplus earnings’ in the previous MAP because his net earnings of £4450 (the SEISS grant £4800 minus losses £350 ) were above his ‘relevant threshold’.

His ‘relevant threshold’ is £3864.90 – this is calculated as follows:

£2500 + (Maximum UC – unearned income) x 100 / 63 + work allowance.

So for Alan the calculation is:

£2500 + (Maximum UC £859.89 – unearned income - nil) x 100 / 63 + work allowance (nil)

ie £2500 + £1364.90 = £3864.90

Alan's earned income above his threshold was £585.10 (£4450 minus £3864.90) these are his ‘surplus’ earnings.

MAP 16 June – 15 July

He reports no s/e income but reports losses of £50 (insurance)

His UC award is calculated as follows –£411.51 standard allowance + housing cost element £450 = £859.89 Maximum UC

Assessable income = nil

Less deduction to recover new claim advance £50

UC payment = £809.89