⚠️ We are currently updating our 2021/22 tax guidance across the website
Tax credits and benefits
Universal credit (UC) was introduced in 2013 and has been gradually rolled out. It is now available in all parts of the UK. It is administered by the Department of Work and Pensions (DWP) and is gradually replacing several benefits, including tax credits.
What is it?
UC is a new single benefit run by the DWP which combines benefits for in and out of work support, housing, families and childcare costs, with additional payments for people who have disabilities or caring responsibilities.
It is gradually replacing:
- Income-based jobseeker’s allowance
- Income-related employment and support allowance
- Income support
- Working tax credit
- Child tax credit
- Housing benefit
When does it start?
Universal credit was introduced in April 2013 in a small number of pilot areas. UC completed its roll-out in December 2018 and is now fully available in all parts of the UK. As a result, it is no longer possible to claim tax credits unless an exception applies. Existing tax credit claimants will not be affected for the time being unless they:
- have a change of circumstances that ends their current tax credits claim and they still need to claim support; or
- they choose to claim UC instead of tax credits; or
- they need to claim UC to access one of the benefits that UC is replacing, for example help with housing costs or out of work support.
It is expected that most existing tax credits claimants will be moved to UC between November 2020 and September 2024. This follow a pilot to test the processes involving no more that 10,000 people between July 2019 and July 2020.
⚠️ Note: DWP suspended the pilot in March 2020 due to the impacts of the coronavirus outbreak in the UK.
You can find out more about who can claim universal credit in our Who can make a claim for universal credit? page.
You can find out more detail on website for advisers.
Will I be better off?
UC is worked out differently to tax credits. Once you start claiming UC, your award will be paid monthly (usually seven days after the end of your monthly UC assessment period) and the amount you get will be based on your income and circumstances in your previous assessment period. You may get more or less than you received under the old legacy benefits system.
If you are moved to UC from tax credits by HMRC/DWP under a managed migration process called ’Move to UC’ and you do not have any changes in circumstances, the Government has promised that you will not receive less money as a result of moving to UC, but this protection will gradually reduce over the years if rates of UC increase or if your UC award increases because your circumstances have changed.
Some changes of circumstances, such as becoming part of a couple or leaving your partner, will end this protection. If you have a change of circumstances that means you have to move to UC, or you choose to claim UC or need to access another benefit that UC has replaced, you will not receive any transitional protection, so the amount of UC you get may be higher or lower than your tax credits. The only exception to this is for those who are entitled to (or were recently entitled to) a severe disability premium in certain benefits and who have moved to UC – the Government has said that they will receive a payment to make up some of the money lost upon moving to UC. We will update the website when more details are known.
The Government extended some of the rules about who will receive transitional protection and also confirmed that tax credit claimants who have capital over the £16000 eligibility limit for UC will have their capital in excess of £16,000 disregarded in their UC claim for 12 months from the point at which they are moved over to UC under the managed migration process, although tariff income from capital over £6000 will still be counted.
Whether or not you are better or worse off depends very much on your circumstances.
Are there any things I should know about?
You cannot claim both tax credits and UC at the same. If you currently claim tax credits and you make a claim for UC, your tax credit award will terminate.
If you are able to work, you will be asked to sign a claimant commitment. The claimant commitment is tailored to your circumstances but you will be obliged to keep to it. You, and your partner, may need to both look for work of up to 35 hours a week – this is called conditionality.
You cannot claim UC if you (or both of you in a joint claim) have reached your State Pension Credit (SPC) age. In that case, you can look into claiming pension credit. If you’re a couple and either you or your partner has not reached your State Pension Credit (SPC) age, then you are also expected to can claim UC for support (until 15 May 2019, mixed age couples could claim pension credit instead of UC). From February 2019, pension credit also includes support for children through the inclusion of a child element for each child or young person you are responsible for.
It is expected that pension credit will be changed over the coming years to include additional support for pension-age claimants who need help with expenses such as housing costs.
If you have savings, this may affect your UC award. If you have savings of £6,000 or more, then DWP will consider that you have £1 of income for every £250 you have over the £6,000 threshold and reduce your award accordingly. If you have savings of more than £16,000, you will not be able to get any UC. There are special rules for people who are moved across from tax credits to UC by HMRC/DWP under managed migration from 2019 which may mean you can still claim even if you have savings of more than £16,000.
For UC, once a child reaches age 16 they become a qualifying young person and can be included in a UC claim up to (but not including) the 1st September following their 16th birthday. After that the rule is slightly different because, provided they remain in full-time non-advanced education or approved training and they were enrolled on, or started, the course before they were 19, they can only be included up to (but not including) the 1st September following 19th birthday. This is different to child benefit and to child tax credit, where a qualifying young person can be included in a claim until they reach age 20 as long as the course started before their 19th birthday.
More information about UC and the transition to UC is available on our website for advisers and on the GOV.UK website on the following pages: