⚠️ This is a news story and may not be up to date. You can find the date it was published under the title. Our Tax Guides feature the latest up-to-date tax information and guidance.

Universal credit payment problems – could HMRC hold the key?

Published on 25 February 2019

The recent universal credit High Court decision that DWP’s method of assessing earned income under universal credit is unlawful, is an important one. But for at least one of the people affected, HMRC’s on or before reporting exception for non-banking days, meant things probably didn’t need to get that far.

The High Court decision in R (on the application of Johnson and others) v Secretary of State for Work and Pensions [2019] EWHX 23 (Admin) was handed down on 11 January 2019). The case examined the ‘two monthly wages in one assessment period’ issue which arises in universal credit (UC) when monthly wages are paid early due to the regular pay day being a non-working day. 

As a bit of background, when calculating UC, the Department for Work and Pensions (DWP) sets a monthly assessment period to work out the award. If a person’s assessment period starts on the 16th of the month, then their assessment period will run from the 16th of one month to the 15th of the next calendar month, for example. It is very rigid – determined by the first day of their entitlement.

But there can be an issue where someone is paid calendar monthly, because in some months they can appear to receive two pay packets in one assessment period – where a payday is pushed forward by a public holiday or a weekend, for example.

In addition to creating wildly fluctuating UC awards, when people are taken to have received two pay packets in one assessment period, they can actually lose out overall. This is because although the UC award can potentially be much higher than usual in the assessment period where no earnings are received (providing there are no additional complications around the claimant’s obligation to do paid work during that month), they lose the benefit of one month’s work allowance. The work allowance is the amount of earnings that claimants with children or with limited capability for work can keep in full before UC is tapered away at a rate of 63p per pound received. There is also the potential for the complex surplus earnings rules or the ‘benefit cap’ to further compound the problem.

During the case in question, the High Court heard the stories of four single mothers, all out of pocket as a result of a clash between their pay date and their assessment period. The following specific details were given about one of the mothers:

‘Katie Stewart is a single mother with a two-year old daughter. She is eligible to receive universal credit and her assessment period runs from the 28th of one month to the 27th of the next month. Ms Stewart worked as a service adviser at Warrington Motors and was paid monthly.

‘In the assessment period 28 September to 27 October 2017, Ms Stewart received two month's salary. Her September salary was paid on the 28th September. As 28 October was a Saturday, she was paid her October salary on Friday 27 October 2017. Consequently, that too fell within that assessment period. Her universal credit was calculated by allowing her to retain one amount of £192 before reducing her universal credit to reflect her earnings. If the September and October salaries had been attributed to different assessment periods she would have been able to retain £192 in respect of her earnings for each month of September and October before reductions in her universal credit. The problem has arisen on subsequent occasions.’

The Court ruled that DWP's method of assessing earned income under UC is unlawful because the DWP are wrongly interpreting the UC regulations. The Court found that, correctly interpreted, the regulations mean the DWP can and should adjust its calculation of UC awards when it is clear that the actual amounts received in an assessment period do not, in fact, reflect the earned income payable in respect of that period.

This is an important decision with potentially wide reaching implications and we are analysing what those implications may be. Meanwhile, we find it interesting that the Court did not examine the role of HMRC or the Real Time Information system in the problem – in Katie Stewart’s case at least (assuming her contractual pay date was the 28th of each month) HMRC’s ‘on or before’ reporting concession for non-banking days may have prevented the issue from arising in the first place.

Let us explain.

Under Regulation 61 of the Universal Credit Regulations 2013 (SI 376/2013), where a person is employed by someone who is a ‘Real Time Information employer’, the amount of the person’s employed earnings for each UC assessment period is to be based on the information which is reported to HMRC under the PAYE Regulations and is received by the Secretary of State from HMRC in that assessment period.

We understand that what happens in practice to give effect to Regulation 61 is as follows: DWP ‘dial in’ 4 times a day, every day, to HMRC and ask for any earnings for UC claimants - at 03:30, 09:30, 15:30 and 21:30. If there is pay data there, it will be transmitted immediately from HMRC to DWP if the ‘payment date’ falls within the assessment period. The correct completion of the ‘payment date’ field on the Real Time Information submission is therefore key in allocating earnings information to an assessment period.

Under the Real Time Information system, the basic premise is that employers need to send payroll information to HMRC on or before their employees’ pay date. HMRC have been very successful at ensuring employers are aware of the ‘on or before’ requirement and repeatedly highlight the potential penalties for failures in relation to sending payroll data to HMRC on time. If employers are paying their employees ‘early’ for example, on a Friday where their normal pay day falls on a Saturday, then it seems likely that many will be using the ‘earlier’ date to complete the payment field. 

However HMRC have introduced some concessions to the ‘on or before’ requirement – which some employers may not be aware of.  

One of the concessions essentially says that where employees are paid a day early because their regular pay day falls on a non-banking day, their employer should not use the earlier pay day in the payment date field, but should use the contractual pay date. This is set out clearly in their HMRC’s further Guide to PAYE and NICs CWG2 at paragraph 1.8 where the following example is given:

When a regular payday falls on a non-banking day but payment made on the last working day before the regular payday

Pay due on Saturday 6 January 2018 (tax month 10) but paid on Friday 5 January 2018, should be treated for PAYE purposes as being paid on 6 January 2018.

For National Insurance contributions purposes the payment must be treated as having been paid on 6 January 2018. The ‘payment date’ on the FPS should be the 6 January 2018 and payments should be reported on or before 6 January 2018.

It seems very likely that Katie Stewart’s employer was not operating their payroll in line with the CWG2 guidance for, if they were, they would have entered the payment date as the 28th rather than the 27th. If they had used the 28th as the payment date (even if they had submitted it on the 27th) then the payment should have been picked up by DWP in the correct assessment period. It appears that this could offer a solution to the ‘two monthly wages in one assessment period’ problem.

This all suggests that HMRC’s approach to employer education should be modified to ensure that, in stressing the need to report ‘on or before’, they also stress the need to ensure that the payment date used is correct. (It is worth saying however, that a UC award can also be negatively affected if payroll information is submitted late or indeed, just after 9.30pm (even if the ‘correct’ payment date has been used), if the person’s assessment period has finished in the meantime.)

All of this demonstrates the complexities and interactions that exist when it comes to RTI and UC and this is only one small part of that system. Other concerns that LITRG have with regards to the use of RTI data within UC include the fact that the RTI earnings information used by DWP does not include unreimbursed expenses amounts, which are allowable deductions from earnings in UC, and the fact that there does not seem to be a straightforward or consistent process for UC claimants to challenge earning figures obtained from RTI.

We will continue to look at the use of RTI data in UC over the coming months and we are keen to hear from claimants and advisers about their experiences of the system. Please contact us to share your experiences of the system, that will feed into our work.


Contact: Meredith McCammond (please use our Contact Us form) or follow us on Twitter: @LITRGNews

Tax guides

Share this page