Universal Credit for Employers

A new website has been launched that helps employers understand what Universal Credit means for them and their employees who claim it.

Universal Credit (UC) is the new benefit which is gradually being rolled out across the UK to replace tax credits, housing benefit, income-based jobseeker’s allowance and income-related employment and support allowance.

The newly launched Understanding Universal Credit website provides information to help people navigate Universal Credit, including employers.

As a reminder, the key features of UC are:

  • Unlike working tax credit, there are no minimum hours requirements to claim UC
  • Monthly payments are usually calculated based on PAYE Real Time Information (RTI) provided to HMRC by employers.
  • Payments are usually adjusted automatically based on the amount reported under RTI: if earnings increase in one month then UC payments decrease and vice versa.

In short, the implications for employers are:

  • Employers do not need to know if their employees are claiming UC and often do not need to do anything differently.
  • UC claimants are treated the same way as other employees for payroll purposes: there are no special tax codes or extra reporting requirements.
  • Employers don’t need to report earnings separately: PAYE information sent to HMRC is automatically forwarded to the Department for Work and Pensions (DWP).
  • There is no need to notify HMRC if an employee or prospective employee claims UC: when a claimant is accepted as eligible, DWP send an electronic message to HMRC who update their records accordingly.

There are, however, some areas which employers do need to be aware of:

  • As there are no hours thresholds in UC, employees may look to increase their hours, or be more open to taking on ad hoc overtime.
  • As PAYE RTI data is used to calculate UC each month, it is important that employers report RTI filings are correct. It is also important that they are on time (usually on or before the employee’s pay day): failure in this can lead to employees receiving the wrong amount of UC. A late filing, for example, can lead to payments falling in the wrong month for UC purposes. This can lead to uneven UC awards or, if a late submission results in two payments apparently being made in the same month, the DWP may think that the employee’s income has gone up, with the result that the employee’s UC claim could be significantly reduced for that month or even stopped altogether.
  • Employers that are exempt from online payroll reporting need to inform their employees of this, as the employees will be personally responsible for reporting their earnings to the DWP.