Universal Credit for Employers

Universal Credit (UC) is the new single monthly payment which will replace a range of current state benefits and tax credits.  It is currently being rolled out in stages across different parts of the country.

Key features of UC are:

  • Unlike previous in-work benefits, there is no upper limit on the number of hours that can be worked.
  • Monthly payments are calculated based on PAYE Real Time Information (RTI) provided to HMRC by employers. 
  • Payments are adjusted automatically based on the amount reported under RTI: if earnings increase in one month then UC payments decrease and vice versa.

Implications for employers

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 is no cap on hours worked under UC, employees may look to increase their hours, or be more open to taking on ad hoc overtime. 
  • Any bonuses paid to employees will be assessed alongside their salaries and will therefore reduce, or even potentially eliminate the payment of UC for the month.
  • Benefits in kind will not initially be taken into account for UC purposes, though HMRC are considering how to address these in the future.
  • As PAYE RTI data is used to calculate UC each month, it is important that employers report this on time: failure to do so can lead to employees receiving the wrong amount of UC.   
  • 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.

More information on Universal Credit can be found here on the LITRG website and here on HMRC’s website.

Posted in: Employment