Managed migration – transitional protection

With managed migration expanding over the coming year, Owen Stevens takes a look at transitional protection for people who would be worse off as a result. Note: the rules and processes described below apply only in the managed migration process.

The main rules for managed migration are contained in the Universal Credit (Transitional Protection) Regulations 2014.1SI 2014 No.1230 (‘UC(TP) Regs’) A ‘notified person’ is a person to whom a migration notice has been issued.2Reg 44(6) UC(TP) Regs A ‘qualifying claim’ is a claim for universal credit (UC) by a single claimant who is a notified person, or joint claimants, both of whom are notified persons, where the claim is made on or before the final deadline.3Reg 48 UC(TP) Regs The ‘migration day’, in relation to a qualifying claim, is the day before the first day on which the claimant is entitled to UC in connection with that claim.4Reg 49 UC(TP) Regs

Before making a decision on a qualifying claim, the DWP must first determine whether a transitional capital disregard is to apply and/or whether a transitional element is to be included in the calculation of the award.5Reg 50(1) UC(TP) Regs

No transitional element is to apply to anyone who has had a change of relationship status.6Reg 50(2) UC(TP) Regs But a transitional capital disregard could potentially apply to some people who have had a change to their relationship status, so long as their claim was still a ‘qualifying claim’ and they were entitled to tax credit on the migration day.

Where there has been a determination that a transitional element or a transitional capital disregard are to be included in the calculation of an award but the decision is that there is no entitlement to an award, then transitional protection cannot apply to any subsequent award (unless an exception applies).7Reg 57 UC(TP) Regs

The transitional capital disregard applies where, on migration day, the claimant is entitled to an award of a tax credit and has capital exceeding £16,000. Where the disregard applies, any capital exceeding £16,000 is to be disregarded for the purposes of working out whether the financial conditions regarding capital are met and when calculating the award of UC (including the indicative UC amount, used in the calculation of the transitional element).8Reg 51 UC(TP) Regs; claimants with a transitional capital disregard will be treated as having £174 unearned income from their assumed yield from capital.

The transitional capital disregard can apply for up to 12 assessment periods.9Reg 51(4) UC(TP) Regs

A transitional element is to be included in the calculation of a UC award if ‘the total legacy amount’ is greater than ‘the indicative UC amount’. Where a transitional element is to be included, it is, when calculating the UC award, treated as an additional amount in the calculation of the UC maximum amount.10Reg 52 UC(TP) Regs; the total legacy amount and indicative UC amount are calculated in accordance with regs 53 and 54. The initial amount of the element is determined in accordance with regulation 55(1).

The total legacy amount is the sum of the representative monthly rates of all awards of any existing benefits11'Existing benefit’ is defined at reg 2 UC(TP) Regs. to which a claimant is, or joint claimants are, entitled on the migration day. Regulation 53 sets out the way in which the representative monthly rate of awards of tax credits and the other legacy benefits are to be worked out. The representative monthly rates of existing benefits are to be calculated on the basis of the information held by the DWP and HM Revenue and Customs (HMRC), on the migration day.

The indicative UC amount is the amount to which a claimant would be entitled if an award of UC were calculated by reference to the claimant’s circumstances on the migration day – subject to a range of assumptions set out in regulation 54 (regarding, for example, responsibility for children, and childcare costs). The earned income used in calculating the indicative UC amount is to be calculated based on the earned income used for the representative monthly rate of benefits and tax credits – ie, on the basis of the information held by HMRC and the DWP on migration day.

As for the other information used, regulation 54(1) states that the indicative UC amount is calculated by reference to the claimant’s circumstances on the migration day and, at regulation 54(7), that it is to be based on the information that is used for the purposes of calculating the total legacy amount, supplemented as necessary by such further information or evidence as the Secretary of State requires. This is arguably not the same as saying that the other aspects of regulation 54 (besides earned income and childcare costs) must only be based on the information actually held on migration day.

The assumptions used in regulation 54 can, in some cases, cause mismatches between the indicative UC amount and the actual UC award. If the indicative UC amount is an overestimate of the amount that will actually be awarded, then this could mean no transitional element, or a relatively small amount of transitional element. In the event that the actual UC award is less than the indicative UC amount, then the transitional element, if there is any at all, will not prevent the claimant being worse off at the point of transfer.

This may affect, for example, people doing employment and support allowance (ESA) permitted work. This is because the calculation of the indicative UC amount assumes that the earned income used for the calculation is the amount used for the representative monthly rate of ESA, and is to be ‘nil if none were taken into account’. In the case of people doing permitted work, there was no income taken into account in the calculation of the ESA award, which suggests that none should be taken into account in calculating the indicative UC amount. But, of course, these earnings are taken into account in the calculation of the actual UC award – this means that the indicative UC amount (which does not factor in those earnings) is an overestimate of the UC award which will actually result.12The DWP states that this problem will not arise, but has not provided a reasoned explanation as to why not.

People who are benefit capped in legacy benefit will not be surprised to find themselves capped in UC, and will have their total legacy amount calculated on the basis of their capped legacy benefits.

But people who do not get housing benefit (HB) (or who have their HB capped down to the minimum of 50 pence a week), and whose legacy benefits exceed the UC benefit cap, nevertheless have that cap applied when working out the total legacy amount.13Reg 53(11) UC(TP) Regs These people may, despite any transitional protection, have a sharp fall in income when they are managed migrated.

Others may be subject to a cap for the first time when migrated to UC. People on working tax credit (WTC) with low income – which could include, for example, people paid four-weekly while working 16 hours at the national minimum wage – may also be capped without warning (though advisers should check whether the benefit cap grace period may apply14Reg 82 Universal Credit Regulations 2013 No.376 (‘UC Regs 2013’)). Again, this may result in a sharp drop in benefit income.

If a notified person does not meet the basic condition of entitlement to UC not to be receiving education, on the day that legacy awards are to terminate as a consequence of a claim for UC, then the basic condition is not to apply in relation to them.15Reg 60 UC(TP) Regs

The transitional element is partly calculated using the information held on the migration day. Regulations set out circumstances in which a UC decision, in so far as it embodies determinations relating to the transitional element, may be revised or superseded despite the requirement to calculate the transitional element on the basis of the information held on migration day.16Reg 62 UC(TP) Regs

Those circumstances are:

Some of the calculation of the transitional element is to be based on the information held on migration day, and some of the calculation is to be made ‘by reference to the claimant’s circumstances on the migration day’ – the ‘circumstances on the migration day’ could arguably include changes which are made as a consequence of a decision made subsequent to migration day but are effective from the migration day or earlier.18MW v SSWP (IS) [2022] UKUT 59 (AAC), paras 26 and 27

Claimants expecting changes to their circumstances after their migration day, such as someone expecting a decision on a disability benefit claim which, if awarded, would increase their legacy benefit entitlement, may wish to consider whether it would be advantageous to request the cancellation of their migration notice, to request an extension of their deadline day until the change has taken place or, ahead of migration, to request a legacy revision or supersession based on an expected change (and ask that the decision not be made until the change occurs). Whether or not such a cancellation, extension or revision or supersession request would be advisable will vary depending on the facts. Failing that, the failure to make provision for claimants in this situation may arguably be discriminatory – advisers supporting claimants in this situation may wish to contact the author for advice.

Once someone has a transitional element included in the calculation of their UC award, then it can be reduced through ‘erosion’ – essentially, by increases in UC standard amounts or elements, excluding the childcare element.19Reg 55 UC(TP) Regs. See ‘Erode to nowhere’, Bulletin 286, p12 (on almost identical rules regarding the erosion of the transitional SDP element). Subsequently, reg 55 has been amended to ensure that where the limited capability for workrelated activity element replaces the limited capability for work element, the increase taken into account is the difference between the two elements – The Universal Credit (Transitional Provisions) Amendment Regulations 2022 No.752.

Transitional protection will end in specified circumstances.20Reg 56 UC(TP) Regs Broadly, these circumstances are the cessation of employment or a sustained drop in earnings, and couples separating and forming.

For claimants who, in their first UC assessment period, had earned income equal to or more than their administrative threshold (for single persons, the single administrative threshold, and for couples, the couple administrative threshold),21As set out in reg 99(6) UC Regs 2013. This rule applies to all claimants, regardless of whether reg 99(6) is relevant to them in other contexts. Advisers will note that in the 2023 Budget the government announced plans to amend the administrative earnings threshold. then transitional protection will end in the event that it is the assessment period after the third consecutive assessment period in which the claimant’s earned income (or, for couples, their combined earned income) is less than their threshold. A claimant is treated as having earned income equal to or more than their threshold in any assessment period in which the minimum income floor applies to them or in which it would apply were it not for their falling into a start-up period.

Transitional protection also ceases to apply when joint claimants cease to be a couple or become members of a different couple, or when a single claimant becomes a member of a couple (unless it is a case where the person may claim as single person).22Reg 3(3) UC Regs 2013

Where transitional protection applies but an award of UC ends, or a decision on a claim for UC is that there is no entitlement to an award, then transitional protection cannot be included in respect of any subsequent assessment period. There is an exception in the event that the award ended, or a claim did not result in an award, due to earnings and the claimant becomes entitled to an award of UC within the period of three months, beginning with the day that would have been the last day of the assessment period had there been entitlement to UC in the month in which the earnings were received.

If someone has a brief period without UC due to earned income then becomes entitled again soon after, then so long as a transitional capital disregard still applies and capital remains above £16,000, they would still have a capital disregard for all 12 assessment periods that the disregard can be applied for, they would not lose out due to the loss of UC entitlement.23Reg 57 UC(TP) Regs

If, in any assessment period, the claimant’s capital drops below £16,000, the transitional capital disregard is not to apply in any subsequent assessment period.24Reg 51(3) and (4) UC(TP) Regs

Transitional protection for students applies while they are continuing to undertake the course.25‘Undertaking a course’ is defined in reg 13 UC Regs 2013

‘Angie’ is self-employed with low profit. Her annual profit is £7,320 and she works 30 hours a week. She has three children, all born before April 2017. She lives outside London and rents from a social landlord for £1,000 a month. She receives WTC, child tax credit (CTC), HB and child benefit. She is exempt from the benefit cap because she receives WTC.

On moving to UC, she would fall into a ‘start-up period’ and so would be exempt from the minimum income floor. A transitional element can be included in the calculation of Angie’s UC award if her total legacy amount is greater than her indicative UC amount.

Angie’s total legacy amount is the sum of the representative monthly rates of tax credits and housing benefit to which she is entitled on migration day.

Representative monthly rate of tax credit: £1,315.22. This is based on the figure for the daily rate of the award on migration day converted to a monthly figure. Angie’s relevant period for the daily rate of her award is one day. Her maximum entitlement for the relevant period is £43.24. Her relevant income on migration day is £20. Her annual income is unchanged from the previous tax year so there is no disregard. The threshold for the relevant period is £20.37. Angie’s income is less than her threshold and so she is entitled to the maximum award of tax credits. The daily rate of the award is converted into a monthly figure by multiplying by 365 and dividing by 12.

Representative monthly rate of housing benefit: £817.83. This is the weekly rate of her HB on migration day converted to a monthly figure. Her maximum weekly HB is £230.77. Her applicable amount is £336.67. Her income is made up of £140.77 self-employed earnings (£98.67 after disregards) and £302.68 tax credits – her total income is £401.35. Angie’s maximum HB is reduced by 65 per cent of the amount by which her income exceeds her applicable amount, leaving £188.73. This is converted to a monthly figure for the representative monthly rate of HB, giving £817.83.

Total legacy amount: £2,133.05 (representative monthly rate of tax credits plus the representative monthly rate of HB).

The indicative UC amount is the amount of UC to which Angie would be entitled if an award were calculated by reference to her circumstances on migration day. The relevant assumptions in regulation 54 are that she is responsible for the children or qualifying young persons in respect of whom CTC is payable, that her earned income is the annual amount used in her tax credit calculation converted to a monthly figure and with deductions for income tax and national insurance (NI) if appropriate, and that her UC amount is to be calculated after any reduction for the benefit cap.

Angie’s UC maximum amount is £2,222.90. She has £610 monthly self-employed income with no deductions for tax or NI – after the work allowance and taper, this is £127.05. Her UC maximum amount minus her income is £2,095.85. Angie also receives £241.80 child benefit a month, so total benefit income is £2,337.65, which is above the benefit cap amount of £1,835. Angie’s earnings are not above the earnings exemption level, the grace period does not apply and no other exemptions apply, so the benefit cap is applied, reducing Angie’s indicative UC amount to £1,593.20.

Angie’s indicative UC amount is greater than nil and less than her total legacy amount, so she will have a transitional element equal to the difference of £539.85 included in the calculation of her UC award, in accordance with regulation 55(1)(a).

However, Angie will be benefit capped in UC – despite the fact that she was exempt from it under the legacy system. So Angie has, without warning, seen a large drop in her benefit income at the point of managed migration from £2,133.05 a month (legacy) to £1,593.20 a month (UC).

Unless Angie can increase her income or fall into some other exemption, she will continue to be benefit capped.