Universal credit and extra hours

thelawnet

calcotti said:

The earnings used for UC calculations are net after NI, Tax and pension contributions. Obviously the tax and NI is significantly less than 32% due to the tax free allowance.

As advised, she needs to check her UC statements every month to check that they are using her correct earnings.

Yes the calculations I gave above are net, obviously 20% + 12% + 5.5% + 55% is 92.5%, which would be ludicrous, it is 28.125% net as per my calculation, before you add back the pension contribution. The scenario I referred to above is that she currently earns barely less than the tax-free allowance, which means that: * the first £344 of her monthly income is not subject to any deduction, although she makes a pension contribution * the next £700 approx. is subject to the 55% UC, before pension, so it works out about 52% tax * everything above that (subject to the slight variance between IT and NI thresholds) is taxed at 65.88% taking into account income tax (but not NI) relief on pension contributions

calcotti

I really have no idea what you are trying to say. Why are you adding in pension contributions? If she earns below £12,570 she now isn't paying any tax or NI so there are no deductions for this. The earnings deduction on UC is not a tax.

All of the above is off point anyway. As advised, what she needs to check is whether or not the earnings figures used to calculate her UC payments as shown on the monthly statements accurately shows her actual net earnings.

thelawnet

calcotti said:

I really have no idea what you are trying to say. Why are you adding in pension contributions? If she earns below £12,570 she now isn't paying any tax or NI so there are no deductions for this. The earnings deduction on UC is not a tax.

All of the above is off point anyway. As advised, what she needs to check is whether or not the earnings figures used to calculate her UC payments as shown on the monthly statements accurately shows her actual net earnings.

The actual point is that she is considering increasing her hours so that her pay will increase to £15,600 or something like that, and I suggested that this would reduce her UC because UC is calculated monthly, to which she said 'my UC has never reduced when I receive overtime'

She currently has a basic pay of around £11,500, BUT she is working overtime so her actual income is more like £13,000 at the moment and she is paying a little IT and NI

Since this is a question about the value of working more hours, there is no point in thinking about or discussing what she pays on the hours she already works, but what she would pay on the extra hours, which would indeed be subject to IT, NI and Universal Credit taper (which goes to the government, so I call it tax for that reason, whether it is 'tax' or 'deduction from benefits', it is 'money she won't get').

calcotti

The advice remains the same, she needs to check whether or not the earnings figures used to calculate her UC payments as shown on the monthly statements accurately shows her actual net earnings.

You are correct that the financial gain from working extra hours will be low. She will get to keep about 30p of each extra £1 earned.

thelawnet

Ok I spoke to her now and got the correct (!) information this time, which is that in fact her UC does vary from month to month, which is as I thought originally.

She has a proposed salary of 17,373 for her new job. I have suggested she makes Additional Voluntary Contributions to her defined benefit pension scheme, as she will get relief on income tax and it will increase her UC, although it will reduce her net take home it seems the most cost-effective means. She is going to speak to her HR about this.