Calculating the transitional element

Introduction

The transitional element is part of the transitional protection available to those who claim UC under the formal managed migration process.

Broadly, under managed migration, a transitional element was only included in the calculation of your first universal credit award if the total amount of your awards of existing benefits (the total legacy amount) on migration day were greater than the amount of an award of universal credit (the ‘indicative’ universal credit amount) you would have been entitled to on that same day.

  An important note is that the calculation used an indicative or notional universal credit amount. It did not use the actual amount of your first universal credit award compared against your tax credit (and other legacy benefit) award. As a result, it is possible that your actual universal credit award in your first assessment period was different to this indicative universal credit amount as the rules used to calculate each are different.

This means that for some people, even though your first universal credit payment was less than your previous tax credit award, you may not qualify for the transitional element. We explain this further below under the hearing ‘Comparison with the first universal credit award’.

We understand that universal credit claimants are not automatically provided with any breakdown of transitional element calculations but they can ask DWP to give them a breakdown if required.

Overview of the calculation

The process for calculating the transitional element was as follows:

Step 1 – daily rate of tax credits

DWP issued a migration notice to you as a tax credit claimant. You were given a deadline by which you had to make your claim for universal credit. If you made your claim by the deadline day (or final deadline day), the universal credit claim triggered a stop notice for HMRC to stop your tax credits and start the in-year finalisation process. If you did not make your claim by the deadline day, HMRC terminated your tax credit claim.

DWP asked HMRC to provide them with a calculation of your daily rate of tax credits, calculated on the basis of the information HMRC had about your circumstances on migration day, that is, the day before the universal credit claim was made. DWP then converted this figure into a monthly figure by multiplying by 365 (366 in a leap year) and dividing by 12 as set out in the rules.

Step 2 – calculation of other legacy benefit amounts

DWP did equivalent calculations for any other legacy benefits you were claiming to reach a total legacy  benefit amount.

The benefit cap rules were engaged at this point, if applicable.

Step 3 – calculation of the universal credit indicative amount

DWP calculated a universal credit indicative amount. The rules say this is ‘the amount to which a claimant would be entitled if an award of universal credit were calculated in accordance with Section 8 of the Act (Welfare Reform Act 2012) by reference to the claimant’s circumstances on the migration day, applying the assumptions in paragraph (2)’.

The rules say this is ‘to be based on the information that is used for calculating the total legacy benefits, supplemented as necessary by further information or evidence as the Secretary of State requires’.

The assumptions DWP made when working out this figure were:

• If you were entitled to child tax credit, then you were assumed to be responsible for any child or qualifying young person in respect of whom the individual element of child tax credit was payable to you
• If you were entitled to an award of working tax credit that included the childcare element, the indicative universal credit amount included the child costs element and, for the purposes of calculating the amount of that element, the amount of the childcare costs was equal to the relevant weekly childcare charges included in the calculation of the daily rate (used to calculate the legacy amount) converted to a monthly amount by multiplying by 52 and dividing by 12.
• If you were entitled to an award of tax credits, your earned income was  - the annual amount of any employment income or trading income (as defined by the tax credit rules), by reference to which the representative monthly rate of that tax credit was calculated for the total legacy amount, converted to a net monthly amount by dividing by 12 and deducting such amount for income tax and national insurance contributions as the Secretary of State considered appropriate.
• If you did not meet the financial conditions set out in Section 5(1)(b) or 5(2)(b) of the Welfare Reform Act 2012 (which relate to the minimum payment of universal credit and the capital rules) then you were treated as if you were entitled to a nil award of universal credit for the purposes of the indicative amount. If the transitional capital disregard applied, you were considered to meet these conditions.
• The indicative universal credit amount was calculated after any reduction for the benefit cap but before any reduction for higher level or other sanctions. There was no reduction for the benefit cap where the amount of the claimant’s earned income (or in the case of a couple their combined earned income) on the migration day was equal to or exceeded the benefit cap earnings threshold.

Step 4 – compare figures

DWP compared the total legacy amount with the universal credit indicative amount. The initial transitional element amount included in the first universal credit assessment period depended on whether the universal credit indicative amount was greater than nil:

• If the universal credit indicative amount was greater than nil, the amount by which the total legacy amount exceeded the universal credit indicative amount was the initial transitional element amount.
• If the universal credit indicative amount was nil, the total legacy amount plus any amount by which the income which fell to be deducted in accordance with Section 8(3) of the Welfare Reform Act exceeded the maximum amount. This means take the earnings amount used in the calculation (after deduction of the work allowance and taper) and deduct the maximum universal credit amount then add on the total legacy amount to calculate the transitional element.

Circumstances and income used to calculate the indicative UC amount

In addition, our understanding from DWP was that they used the following other information:

• DWP got information about employed income and self-employed income from HMRC, the same figures that HMRC used when working out the tax credit daily amount;
• For unearned income, DWP used information from their own benefit records (for example, for income from other benefits) and from the universal credit claim (for example, for income from student loans etc);
• For capital, DWP used information from the universal credit claim;
• If the claimant was not claiming housing benefit on migration day, then a housing element was not included in calculating the indicative universal credit amount;
• If the claimant said they were a carer in their universal credit claim (and met the conditions for a carer element), then a carer’s element was included in calculating the indicative universal credit amount regardless of whether they were also claiming carer’s allowance (but note, carer’s allowance is taken into account in full when calculating universal credit).

The usual rules about appeals apply to entitlement decisions and so it follows that if you disagree with the transitional element amount, the fact your award doesn’t include a transitional element or any other aspect of transitional protection, the resulting universal credit award decision can be challenged under the mandatory reconsideration and appeal procedures.

Comparison with the first universal credit award

It is possible that you received your first universal credit award (for your first assessment period) and that was lower than your legacy benefits (when converted to a monthly income) but there is no transitional element included.

GOV.UK said that the transitional element will make up the difference if your universal credit entitlement is less than your previous tax credits or benefits. However, the complexity of the rules mean that this will not always be the case.

It may be the case that you receive a universal credit award that is higher than your legacy benefit entitlement and still includes a transitional element award or you might receive a universal credit award that is lower than your legacy benefit entitlement but does not include a transitional element award.

There could be a number of reasons why this might happen, for example, tax credits are an annual benefit and universal credit is a monthly benefit, the transitional element is based on just an indicative universal credit figure rather than an actual figure and, of course, there are differences in definitions, calculation rules and what counts as income between universal credit and tax credits (and other legacy benefits).

We have also seen examples where people’s first universal credit award and award notice did not include a transitional element when it should but the transitional element was added later. This may be a processing or timing issue with DWP.