DWP explains Universal Credit pay rules - how much can you earn while on benefits?

Thousands more people are joining the Universal Credit system as the Department for Work and Pensions moves people across from old benefits that are being phased out. Despite popular misconceptions, around a third of people on Universal Credit are working and receive the benefit as a top-up because of low wages, high rents or the extra costs of disabled children.

There are now around seven million people in Britain who are on Universal Credit, with 2.6 million (38 per cent) in employment and 4.4 million (62 per cent) either looking for a job, preparing to re-enter the labour market or ruled medically unfit for work. Local figures for Birmingham show there are just over 212,000 people on Universal Credit with 62,441 (29 per cent) working and the other 149,581 (71 per cent) not in employment.

The DWP says the "accelerated" transfer of people onto Universal Credit will "bring more people into a modern benefit regime, continuing to ensure they are supported to look for and move into work, and comes ahead of the Get Britain Working White Paper – set to be unveiled later this Autumn." But what exactly are the rules for working while receiving Universal Credit? We have detailed the thresholds and deduction criteria below.

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If you live with a partner, you must be on a joint claim for Universal Credit. This means your partner's income and savings are taken into account when calculating your payment, even if they are not claiming benefits themselves.

Generally speaking, your monthly Universal Credit payment is reduced by 55p for every £1 in earnings in the preceding assessment period. This is known as the taper rate. Some people are allowed to earn a certain amount - known as a work allowance - before this deduction is applied.

If you get help with housing costs, your payment will start to reduce when your monthly wages reach £404. If you do not get any help from the DWP towards housing costs, your Universal Credit payment will start to reduce by the taper rate when your monthly wages reach £673.

The DWP expects people with work requirements to earn a certain amount while they are receiving Universal Credit. This is called the Administrative Earnings Threshold (AET). In May 2024, the AET increased to £892 per month in gross income for single claimants and £1,437 per month for joint claimants.

The DWP has a benefit cap that limits the total amount you can get whilst receiving state support. But it doesn't apply if you are on Universal Credit and you and your partner earn £793 or more a month combined, after tax and National Insurance contributions.

If you begin a claim for Universal Credit because you've stopped working or are earning much less, the benefit cap won't affect you for up to nine months. This is called a grace period. Rules say that in order for this to apply, in each of the 12 months before your wages fell, you must have earned at least £793 a month since April 2024 (and at least £722 in any months before that).

Your partner's earnings will be included when working out how much you earned even if they're not claiming benefits. If you have separated, their earnings will be included for the time that you lived with them before you split up.

You need to report your last 12 months' earnings when you apply for Universal Credit in order to qualify for the grace period. So you may be asked to provide proof of wages in the year before your claim to see if you'll be affected by the benefit cap.

There's no limit to how much you can earn while on Universal Credit but there may come a point when your wages are too high to receive benefits. You will still receive your wages in full when you reach this point, but no means-tested state support would be available on top. Each person's claim is individually calculated based on their own circumstances so there is no across-the-board earnings limit when you can't get benefits any more.

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