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Forum Home  →  Discussion  →  Universal credit administration  →  Thread

Surplus Earnings

James Craig
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Generalist Adviser - Citizens Advice Hammersmith & Fulham

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Client is on unpaid leave, caring for seriously ill child, and receiving UC.

Employer is making client redundant and will make a terminal payment, comprising a redundancy payment and a significant amount of holiday pay/payment in lieu of notice.

The client’s intention is to use most of her terminal payment to reduce debts, so she won’t be prevented from continuing to get UC by the level of her capital,  but the part of her terminal payment that counts as earnings will be so great that the surplus earnings rules will exclude her from UC for some time.

If the client were to close her UC claim voluntarily shortly before receiving her terminal payment, would this be effective to exclude the application of the surplus earnings rules?

Mairi
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Welfare rights officer - Dunedin Canmore Housing Association

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As I assume the intention would be to end the current claim and make a new one in the next month or two I don’t think it would work as if there have been earnings received recently claimants are asked for details when they make their application.

Ianb
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As I understand it the appropriate action depends on how many months will be affected by the surplus earnings.

Any new UC claim made within 6 months of closing the existing one will be set up with the same AP and surplus earnings left over from the previous claim will be taken into account. If the surplus earnings will impact less than six months it is therefore sensible to keep the claim open - and should UC close the claim due to nil entitlement it is essential to do a rapid reclaim in order to get the next month of surplus earnings processed. In normal circumstances when UC might immediately close a claim with a nil payment it might be necessary to do a rapid reclaim several times.

If the figure is going to impact more than six months then It would be better to close the claim and make a new claim just over six months later. This would be treated as a completely new claim with no linkage to the previous claim.

I have found this helpful when trying to understand surplus earnings
https://revenuebenefits.org.uk/universal-credit/guidance/entitlement-to-uc/self-employment/surplus-earnings-and-losses

Surplus earnings remain Something that affects relatively few claimants. Clearly when the de minimis amount changes from £2500 to £300 many more claimants will be affected but at least that has been pushed back another year to 2023.

[ Edited: 12 Nov 2021 at 04:59 pm by Ianb ]
James Craig
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Thanks both. The Revenue Benefits link contains this wording:

“The surplus earnings rules are most likely to apply where someone has an increase in earned income in an assessment period that reduces their UC award to nil and so terminates the claim. However, the rules can also be triggered where there is no change in income, but circumstances change so that elements are removed from the award meaning that their UC is reduced to nil.”

In my scenario the claim would be closed voluntarily, before the increased earnings have a chance to reduce the UC award to nil and so terminate the claim. The question is whether that is an effective tactic.

Ianb
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Macmillan benefits team, Citizens Advice Bristol

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James Craig - 12 November 2021 06:52 PM

In my scenario the claim would be closed voluntarily, before the increased earnings have a chance to reduce the UC award to nil and so terminate the claim. The question is whether that is an effective tactic.

I understand your thinking. If the claim is not ‘terminated’ due to nil income but rather closed by the claimant will a new claim be treated differently? Logically it shouldn’t be otherwise it becomes too easy to avoid being subject to the surplus earnings rules.  The regulations just refer to a claim that terminated within the previous six months.

[ Edited: 12 Nov 2021 at 08:05 pm by Ianb ]
UB40
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I think you are aware that redundancy pay is not considered for Surplus Earnings.

“For those who are made redundant and make a claim to Universal Credit (UC), their redundancy payments, with limited tax liability under the Income Tax (earnings and Pensions) Act 2003, are treated as capital. A claimant’s capital is taken into account to determine their entitlement to UC and in the calculation of their UC award.

If capital exceeds £16,000 (after having deducted allowable disregards, such as, personal injury compensation payments) there will be no entitlement to UC.
Redundancy payments treated as capital are therefore not taken into account as earnings, nor would the surplus earnings rules apply to them.”

https://www.theyworkforyou.com/wrans/?id=2020-05-13.46823.h

 

Charles
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As Ian mentioned, the Regs are clear that no matter why the claim is terminated, you look at the earnings received in the following month. So, for your suggestion to work, she’d have to relinquish her entitlement before the end of the AP which finishes before she receives the earnings.

For example, if she is due to receive the earnings on 30/11/21 and her AP finishes on the 15th each month, she’d have to close her claim on or before 15/11/21 (and lose out on benefit for that AP).

At one stage, DWP’s practice in cases of voluntary relinquishment of benefit was to terminate the award from the end of the AP in which the request was made - so, in the above example, she’d have had to request the termination by 15/10/21. But they’ve changed their minds about that.

See this thread. (This scenario of relinquishing entitlement in surplus earnings cases was actually the reason I made that FOI request.)

EDIT TO ADD: I don’t have any experience of this in practice, so it could be even a later relinquishment would still cause DWP in practice to ignore the level of earnings in that AP

[ Edited: 15 Nov 2021 at 01:12 am by Charles ]
JRyan
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Welfare Benefits, ParagonCHG, Surrey

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Apologies for reopening a slightly old thread but looking for some quick advice on surplus earnings

Backdated arrears of sick pay totalling £5000+ due to error of employer. There is no exemption from the surplus earnings rule for this payment is there?

UB40
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The ADM is not favourable…
Certain payments treated as earnings
H3058 Payments made by an employer to a person in respect of
1. an absence due to sickness or disability (for example, employer’s sick pay)