Little-known rule could see Universal Credit payment drop to zero overnight

Universal Credit payments are heavily influenced by a claimant's earnings in each assessment period, which covers the full month before their benefit payment is made. Due to the little-known surplus earnings rule, if a person's income suddenly hits £2,500 or more in an assessment period they "will get no Universal Credit".

The Department for Work and Pensions confirmed: "You will not get any Universal Credit until your earnings, including the amount that's carried over, go under the limit and you become entitled to Universal Credit again. If your wages reduce enough for you to be eligible for Universal Credit within 5 months, your Universal Credit payment will be automatically restarted. If it's after 5 months you will need to apply again."

But there is a simple solution to help limit the repurcussions of these surplus payments.

The DWP has suggested a potential workaround that people might utilise to mitigate the effects. It explained: "Your private pension contributions can reduce the amount of income that is considered when assessing your Universal Credit award.

"This could mean you get a higher Universal Credit payment. A workplace pension run by your employer should already be taken into account, as Universal Credit is based on your net take-home pay."

If you contribute to a registered personal pension scheme that isn't managed by your employer, you will need to inform the DWP each assessment period about how much you have paid into the scheme during the month, excluding the tax relief received, and provide proof of these payments.

Workers or those who are self-employed may face the greatest risk from this regulation, as an annual bonus could represent a substantial enough windfall to exceed this threshold.

In the same way, self-employed individuals who experience a sudden surge in income may encounter these repercussions as well. Couples who previously claimed the benefit jointly but are now going through divorce proceedings will have the surplus split equally between both parties.

Should one person submit a fresh single or joint Universal Credit application, only their portion will impact their entitlement.

Universal Credit also has an administrative earnings threshold. This is the total amount claimants earn before deductions like income tax, national insurance, and pension contributions eligible for tax relief.

For individual claimants, this threshold is at £952 per assessment period. For couples, it's set at £1,534.

Those earning below this threshold must demonstrate to the DWP that they are actively seeking more or better-paid work and that they are available for work. They will also receive regular personalised support from a work coach to enhance their job search strategies, interview skills and connections with employers.

Individuals earning above the threshold won't be required to have regular meetings with a work coach, but ideally should still be seeking more or better paid employment. Earnings from self-employment are not included in these thresholds.