The UC work allowance
Some universal credit (UC) claimants can earn up to a certain level each month without their earnings affecting their award. This is known as a work allowance. Carri Swann explains who gets a work allowance, how much difference it makes in practice and issues for advisers to look out for.
The basics
Following changes to the UC rules in 2016, only two groups of claimants have work allowances:
those with one or more dependent children or qualifying young people; and
those with limited capability for work.1Reg 22 Universal Credit Regulations 2013, No.376 (‘UC Regs’)
Claimants in couples will receive a work allowance on their claim so long as at least one partner meets one of these conditions. If both partners in a couple work, one work allowance applies to their combined earned income.
In 2021/22, the work allowance is set at:
£293 a month, if the UC award contains the housing costs element, or the claimant is separately receiving housing benefit for the costs of temporary accommodation;2 2 Reg 5A Universal Credit (Transitional Provisions) Regulations 2014, No.1230 or
£515 a month otherwise.
Effect on UC awards
If the claimant’s earned income is less than or equal to their work allowance, their UC award will not be reduced at all on account of their earnings. Another way of putting it is that their earnings will just be paid on top of their UC.
If, however, their earned income is more than the work allowance, their UC award is reduced by 63 per cent of the excess. In other words, their UC entitlement will be reduced by 63 pence for every extra £1 they earn above the work allowance.
If the claimant is not eligible for a work allowance at all, the 63 per cent taper will apply to all of their earnings, meaning that their UC will be reduced from the first £1 they earn.
Employer-paid benefits such as statutory sick pay (SSP) and statutory maternity pay (SMP) count as earned income for these purposes.3Reg 55 UC Regs The work allowance will apply to them in exactly the same way that it applies to ordinary pay.
However, there are other forms of work-related income which are treated differently. These include maternity allowance (MA) and retirement pensions.4Reg 66 UC Regs These are misleadingly described as ‘unearned’ and are not subject to the work allowance or the 63 per cent taper. Instead, they reduce the UC award pound for pound.
In practice
It is crucial to factor in the work allowance when anticipating how a change of circumstances will affect a claimant’s UC award.
Consider a UC claimant with limited capability for work who lives with her parents without housing costs, and whose part-time job pays £500 a month. Her work allowance, at £515, is higher than her earnings, so those earnings will simply be paid on top of her UC award.
However, if she moves into her own flat and starts getting the UC housing costs element, her work allowance will drop to £293. Her £500 monthly earnings have stayed the same, but since they exceed the new work allowance, they will start having an impact on her UC. Her award after housing costs will now be reduced by 63 per cent of her excess earnings. In other words, her UC will now drop by £130 a month.
If the same claimant is found ‘fit for work’, she loses her work allowance altogether. Unfortunately, this is a common occurrence for claimants who have limited capability for work due to ill health or disability, but who still manage to do some work – perhaps even encouraged by the existence of the work allowance. In this specific case, the claimant’s £500 earnings will now reduce her monthly UC award by £315.
If the same claimant has a child, becoming eligible for a work allowance again, but (for whatever reason) needs to claim MA instead of SMP, she will have the full amount of her MA subtracted from her UC award. In this specific case, she would probably be eligible for MA of £450 a month, but her UC would then be reduced by the full amount of £450 a month. Here, because of the type of income concerned, the work allowance has no effect at all.
In other words, the same person might see her UC award reduced by anything from £0 to £450 on account of work-related income, depending on fairly minor changes in her circumstances, and without changing her job or usual pay.
Other issues: eligibility
It will be easy to advise most claimants whether or not they are actually eligible for a work allowance, but there are exceptions.
Some claimants who are, practically speaking, responsible for children, will not qualify for a work allowance on that basis. These include kinship carers who do not have legal parental responsibility, and some claimants whose child is living in a care home.5Regs 4 and 4A UC Regs Meanwhile, parents of 16 to 19 year olds may find they struggle to evidence that their child’s course of education makes them a ‘qualifying young person’6Reg 5 UC Regs for UC purposes.
The limited capability for work condition, meanwhile, causes a timing issue. A claimant with limited capability for work will need to have a DWP decision confirming this before they are eligible to receive a work allowance.7Regs 8-40 and Schs 8 and 9 UC Regs However, these decisions can take a very long time, and in the meantime, claimants’ pay – or, often, their SSP – is being taken into account in full for the purposes of UC. At a time of widespread delays to work capability assessments, this creates the possibility of months of hardship.
Once a work capability decision has been made, it appears that the work allowance can be backdated at least to the end of the limited capability for work/limited capability for work-related activity waiting period, and arguably to the start of the claim. Unfortunately, without clear law or DWP guidance on this question,8The DWP guidance on work allowances is remarkably limited: Advice for Decision Making (ADM), paras E2202-2205. claimants may be missing out on these backdated sums.
Although the rules are simple, the work allowance can be a source of strife for some claimants. Advisers should take particular care when advising those with limited capability for work, as well as kinship carers, parents of disabled children, expectant mothers, second earners, and any eligible worker who is thinking about claiming help with housing costs.
1     Reg 22 Universal Credit Regulations 2013, No.376 (‘UC Regs’) »
2      2 Reg 5A Universal Credit (Transitional Provisions) Regulations 2014, No.1230 »
3     Reg 55 UC Regs  »
4     Reg 66 UC Regs »
5     Regs 4 and 4A UC Regs »
6     Reg 5 UC Regs »
7     Regs 8-40 and Schs 8 and 9 UC Regs »
8     The DWP guidance on work allowances is remarkably limited: Advice for Decision Making (ADM), paras E2202-2205. »