Search rightsnet
Search options

Where

Benefit

Jurisdiction

Jurisdiction

From

to

Forum Home  →  Discussion  →  COVID-19: Welfare benefit rules and entitlements  →  Thread

Surplus earnings/capital

Ianb
forum member

Macmillan benefits team, Citizens Advice Bristol

Send message

Total Posts: 383

Joined: 24 November 2017

When UC claimant gets a large payment (such as SEISS grant) such that there are surplus earnings carried forward how is the money treated in respect of capital rules?

Say there is £4,000 carry forward, the £2500 disregard is applied so £1500 is taken as earnings in the next AP. Is the full £4000 treated as capital or the £2500 disregarded amount taken as capital or is none of it capital while being considered under surplus earnings rules?

Gareth Morgan
forum member

Managing director - Ferret, Cardiff

Send message

Total Posts: 1679

Joined: 16 June 2010

The DWP line, in a memorandum to the SSAC, was:

The surplus earnings policy does not affect the way capital limits or tariff income rules apply. Where a person has a large amount of surplus earnings so that they build up a substantial amount of capital that is still available to them when they make a new claim for UC, this will be taken into account in the usual way i.e. in line with Part 6 of the 2013 Regulations.

Ianb
forum member

Macmillan benefits team, Citizens Advice Bristol

Send message

Total Posts: 383

Joined: 24 November 2017

I suspected that was the case even though it seems unreasonable for the same money to be treated as both capital and income.

Thanks for replying.

Charles
forum member

Accountant, Haffner Hoff Ltd, Manchester

Send message

Total Posts: 678

Joined: 27 February 2019

This is an interesting question, even before considering surplus earnings.

Generally for benefits, income only becomes capital at the end of a period equal to the length of the period for which it is taken into account as income by the benefit concerned. See for example the cases cited here, and in particular paras 22-23 in this case.

However, most benefits take income into account according to the length of time for which it was paid. UC doesn’t do that. It takes income into account for the AP in which it was received. According to the above case law, that would mean it should become capital after one month regardless of the period for which it is paid.
This fits with the UC guidance, which says that income counts as capital if it is still held at the end of the AP following that in which it is received (due to the circumstances-at-the-end-of-the-month rule of UC). See Para H1050 of the ADM.
Although this is often more generous, it won’t always be (depending on the length of the period for which the income was paid). I think one could make a strong argument that the above rule should not be followed for UC (where the period for which it is taken into account as income bears no relation to the period for which the income was paid).

Coming to surplus earnings, you would certainly have a strong argument not to include any amount as both income and capital in any AP (see in particular para 6 of CH/1124/2007).

MareeH
forum member

UC Help to Claim - Citizens Advice Cornwall

Send message

Total Posts: 25

Joined: 3 April 2019

The recently published legislation “The Universal Credit (Coronavirus) (Self-employed Claimants and Reclaims) (Amendment) Regulations 2020” 2(2)(b) allows any sum paid “by way of a grant or loan to meet the expenses or losses of the trade, profession or vocation in relation to the outbreak of coronavirus disease” to be disregarded as capital for 12 months.

http://www.legislation.gov.uk/uksi/2020/522/made?fbclid=IwAR3eJoe77aVHoGrfmG3NEcpZBVjOGkbG0-eFg4B7RJZO_MHwAiFmL6EsBTw

Charles
forum member

Accountant, Haffner Hoff Ltd, Manchester

Send message

Total Posts: 678

Joined: 27 February 2019

That doesn’t seem to include the SEISS. Perhaps because the SEISS doesn’t cover any specific expense or loss, but is rather a sort of income supplement?

MareeH
forum member

UC Help to Claim - Citizens Advice Cornwall

Send message

Total Posts: 25

Joined: 3 April 2019

I based it on the fact that the govt themselves refer to the SEISS as a grant.  While it isn’t designed to meet the expenses of the trade, it is (I believe) designed to meet the losses of the trade .

https://www.gov.uk/guidance/claim-a-grant-through-the-coronavirus-covid-19-self-employment-income-support-scheme

Charles
forum member

Accountant, Haffner Hoff Ltd, Manchester

Send message

Total Posts: 678

Joined: 27 February 2019

I had originally thought that as well, but the Explanatory Memorandum, by missing out the SEISS strongly suggests it isn’t included. They probably consider “losses” to mean actual losses and not simply a grant given due to a reduction in business, or income supplement, which is the main purpose of the SEISS.

Gareth Morgan
forum member

Managing director - Ferret, Cardiff

Send message

Total Posts: 1679

Joined: 16 June 2010

Charles - 21 May 2020 10:16 PM

I think one could make a strong argument that the above rule should not be followed for UC (where the period for which it is taken into account as income bears no relation to the period for which the income was paid).

It demonstrates the UC designers lack of understanding of , for example, the creative process and the difficulty of your suggestion as well.

I spend a couple of years, off and on, thinking about the metaphysical existence of a rent week.  I say, off and on, because sometimes, I was thinking about beer or rugby.  I then spend a couple of months writing my 18 volume work - ‘The Rent Week - what would Heisenberg have said’.  I receive my 25p total royalties in June this year.  What is the period for which the income was paid?

(and, yes, I know there are special rules about royalties but let’s assume that I sell the book directly and take the money.)

[ Edited: 22 May 2020 at 01:25 pm by Gareth Morgan ]
Ianb
forum member

Macmillan benefits team, Citizens Advice Bristol

Send message

Total Posts: 383

Joined: 24 November 2017

My question was based on a view that, in general, money is either treated as capital or income not both which is why we have guidance on when capital is to be treated as income or conversely income is to be treated as capital. However in the absence of guidance it seemed that surplus earnings could end up being treated as both. As far as I can see the cases Charles refers to support the view that money is either income or capital but not both.

At the point of receipt a payment is clearly income (unless it falls into a specific categories where is is to be treated as capital). At the end of the AP any money left generally now falls to be treated as capital. However it would be logical that if some of that money is actually going to be treated as income because of the surplus income rules that same amount should be disregarded as capital. For surplus earnings I think that all of the money carried over is still treated as income, albeit that some is then subject to the £2,500 disregard. It follows therefore that if money cannot be both income and capital that none of the carry forward figure should be taken into account as capital.

However I couldn’t find anything that specifically sets this out and I therefore suspect that a payment can end up being treated as both income and capital (right or wrong).

Gareth Morgan
forum member

Managing director - Ferret, Cardiff

Send message

Total Posts: 1679

Joined: 16 June 2010

My post here got too confusing, for me at least, so I’ll point you to my blog post on surplus income at https://benefitsinthefuture.com/lets-take-the-same-money-off-you-not-once-not-twice-but-three-times/.

In short, that blog says.

A) the UC regs on the legislation.gov.uk are wrong. They miss the surplus earnings formula out of the current UC Regulations 2013 version, online and as PDF..  The consolidated versions for downloading in 2019 and 2018 are wrong.  They say that the formula has been amended in the document, but it hasn’t been.

B) It’s a messy and impractical assessment and process.

C) The same money can be taken into account twice in 3 possible ways

d) If they reduce the de minimis buffer, it will be disastrous.

[ Edited: 25 May 2020 at 02:47 pm by Gareth Morgan ]
Ianb
forum member

Macmillan benefits team, Citizens Advice Bristol

Send message

Total Posts: 383

Joined: 24 November 2017

Adding to this:

For surplus earnings to erode there has to be an active claim. If claimant has claim closed due to surplus earnings and then reclaims at any time within six months the surplus earnings figure used, as I understand it, is that left from the last assessment period prior to closure - even if there has been a gap of more than a month. In most circumstances therefore a claimant should immediately reclaim to allow the surplus earnings calculation to be carried out even if the claim will be closed again. The exception will be if it is clear they will have no entitlement for the next six months in which case it is better to wait because the surplus earnings are disregarded after six months.

The problem of taking surplus earnings into account as capital too is that if the surplus earnings take the capital over £16,000 the claimant will be unable to reclaim. The full surplus earnings are therefore hanging over any future claim within the next six months until such time as the capital drops below £16,000 to allow a new claim to be made.

Gareth, I completely agree with your last point about the impact of these rules if the de minimise figure is reduced to £300 as planned. It will of course also create a lot of work for DWP too given the number of claimants who may then be affected.

Charles
forum member

Accountant, Haffner Hoff Ltd, Manchester

Send message

Total Posts: 678

Joined: 27 February 2019

Ianb - 01 June 2020 11:46 AM

The problem of taking surplus earnings into account as capital too is that if the surplus earnings take the capital over £16,000 the claimant will be unable to reclaim. The full surplus earnings are therefore hanging over any future claim within the next six months until such time as the capital drops below £16,000 to allow a new claim to be made.

I’m not sure about this - having excess capital doesn’t mean you can’t make a claim (see also all the people who’ve been knocked off tax credits recently by making a claim for UC and then discovered they weren’t entitled to UC due to capital).
Also, the legislation clearly considers it to be a valid claim in cases where the claimant’s income is too high for them to have any entitlement, so why should capital be different?

Va1der
forum member

Welfare Support Worker - Community Renewal Edinburgh

Send message

Total Posts: 205

Joined: 7 May 2019

For that matter, could you not immediately set some of that capital “aside to pay future taxes”, and thus not have it included as capital?

It is SE income after all, so reasonable to factor taxes into account.

Vonny
forum member

Welfare rights adviser - Social Inclusion Unit, Swansea

Send message

Total Posts: 263

Joined: 17 June 2010

Ianb - 01 June 2020 11:46 AM

Adding to this:

For surplus earnings to erode there has to be an active claim. If claimant has claim closed due to surplus earnings and then reclaims at any time within six months the surplus earnings figure used, as I understand it, is that left from the last assessment period prior to closure - even if there has been a gap of more than a month. In most circumstances therefore a claimant should immediately reclaim to allow the surplus earnings calculation to be carried out even if the claim will be closed again. The exception will be if it is clear they will have no entitlement for the next six months in which case it is better to wait because the surplus earnings are disregarded after six months.

The problem of taking surplus earnings into account as capital too is that if the surplus earnings take the capital over £16,000 the claimant will be unable to reclaim. The full surplus earnings are therefore hanging over any future claim within the next six months until such time as the capital drops below £16,000 to allow a new claim to be made.

Gareth, I completely agree with your last point about the impact of these rules if the de minimise figure is reduced to £300 as planned. It will of course also create a lot of work for DWP too given the number of claimants who may then be affected.

Although in the case that there has been a gap before reclaiming, they can be treated as having reclaimed every month http://www.legislation.gov.uk/uksi/2020/522/made

Ianb
forum member

Macmillan benefits team, Citizens Advice Bristol

Send message

Total Posts: 383

Joined: 24 November 2017

Vonny - 02 June 2020 12:04 PM

Although in the case that there has been a gap before reclaiming, they can be treated as having reclaimed every month http://www.legislation.gov.uk/uksi/2020/522/made

It was the laying of these regulations with the discretionary power that made me think about the previous normal situation. I wonder whether these new regulations will stay with us or be repealed again when things get to whatever we will consider normal in the future.

[ Edited: 2 Jun 2020 at 08:34 pm by Ianb ]
Ianb
forum member

Macmillan benefits team, Citizens Advice Bristol

Send message

Total Posts: 383

Joined: 24 November 2017

Charles - 02 June 2020 11:01 AM

I’m not sure about this - having excess capital doesn’t mean you can’t make a claim (see also all the people who’ve been knocked off tax credits recently by making a claim for UC and then discovered they weren’t entitled to UC due to capital).
Also, the legislation clearly considers it to be a valid claim in cases where the claimant’s income is too high for them to have any entitlement, so why should capital be different?

Thanks, as always, Charles. I hadn’t thought of it like that. So the argument is they could claim and although they would have nil entitlement due to savings the DWP should still carry out an earnings calculation..