AET for Light Touch £1437 net or gross

Yamor

bygracealone said:

Yamor said:

NedS said:

bygracealone said:

What can you do if an individual at Job Centre thinks they should use net for AET, or does the system decide? What information does the system have e.g. can it see pension contributions? Does it add pension contributions back on to the net pay, together with tax & NI to get a gross figure, to determine whether we have reached AET?

The system assesses earnings based on RTI feed and places the individual in the correct work group based on their reported earnings. The full RTI feed shows gross earnings (used for AET/CET) and deductions for tax, NI and pension conts used for calculating the amount of the UC award based on net earnings.

If the reported earnings are wrong (sometimes earnings are reported or received late which affects people whose AP ends around the time they are paid) then the work group may be wrong and an appointment booked where it may otherwise not be required. The work coach has the ability to override the work group where there is evidence the system has got it wrong, but in the vast majority of cases things work well and issues are mostly caused by employers reporting incorrectly or late.

Do you know if the system looks at gross wages including before any deductions for payroll giving?

The reason I ask is because the Regs imply that the payroll giving should be deducted (unlike income tax, NICs and pension contributions) for AET/CET purposes. But I'd love to know what happens in practice...

Hi Yamor, may I ask which Regs distinguish between Payroll Giving & other deductions? Reg55 groups them all together. Reg99 refers to 55. Is there another that I'm missing? It makes sense to me, given the Hours x NLW x 52/12 calculation, that gross is used, but the employed earnings reference at the end of 99 points to 55, which uses net, deducting all 4. Citizen's Advice website says gross is used for AET, but simply says that that is before tax, with no mention of NI/pension/payroll giving. I'm trying to look at Regs, as final authority, but maybe they are written in a way that is subject to interpretation. Thanks again.

Reg 99(6) refers to "monthly earnings".
Reg 2 defines "monthly earnings" by reference to Reg 90(6).
Reg 90(6) refers to the normal meaning of "earned income" (which is given by Chapter 2 of Part 6 of the Regs), which would include deductions for income tax, NICs, pension contributions and payroll giving, but then adds back in the first three but not payroll giving.

The reference to Reg 55 is only for the meaning of "employed earnings", which is only used in Reg 99(6) to exclude self-employed earnings, not for the actual calculation of "monthly earnings".

Rachelw99213_

Hi what's the outcome of all this? I ask as I'm in a situation where I've always earnt over the AET threshold but since the higher figure of 892 was introduced I've been called into the job center for work commitment reviews saying I need to earn more. My salaried gross pay is £921 every month. I pay zero tax and NI. I do pay £50 which is 5.43% into a company LGPS every month. This net pay of £870 now takes me below. What would you do in this situation? Just ask at work to work more hours. Assuming this will increase my pension contributions? Or opt to come out the pension scheme? I'm not great with figures and find this a bit confusing. Thanks for any help in advance. 

the_pink_panther_2

Rachelw99213_ said:

Hi what's the outcome of all this? I ask as I'm in a situation where I've always earnt over the AET threshold but since the higher figure of 892 was introduced I've been called into the job center for work commitment reviews saying I need to earn more. My salaried gross pay is £921 every month. I pay zero tax and NI. I do pay £50 which is 5.43% into a company LGPS every month. This net pay of £870 now takes me below. What would you do in this situation? Just ask at work to work more hours. Assuming this will increase my pension contributions? Or opt to come out the pension scheme? I'm not great with figures and find this a bit confusing. Thanks for any help in advance. 

I wouldn't opt out of workplace pension. 

I would got to my job centre and explain with payslips as evidence of your earnings.  I understood from all other posts that it is gross earnings which AET is calculated against, in theory, but the RTI system isn't necessarily interpreting the figures accurately.   

I would definitely ask others in this thread again if the Job Centre aren't listening as I've read mixed posts about how well Job Centres seem to understand/apply the rules. 

vex13

There's a recent FOI response that seems relevant. I can't link it but here's the quote

"This figure used in relation to labour market regimes includes tax, National Insurance and relief at source pension contributions deducted by employers. The Universal Credit system does not add these back in, as they are already included in the data from HMRC. 
 
Payroll giving is not included in monthly earnings for the purpose of allocating a claimant to a labour market regime."

This mentions RAS pension deductions but not NET pay arrangements. 

The jobcentre acknowledged their guidance states gross earnings. They said they have already questioned this as the system does not seem to be recognising pension deductions, and that the answer received was that it's based on taxable pay. With NET pay arrangements the pension deductions are removed prior to tax being considered so it seems they do not count towards the AET. 

If I'm reading the responses on here correctly, the jobcentres stance here is wrong?

kaMelo

vex13 said:

There's a recent FOI response that seems relevant. I can't link it but here's the quote

"This figure used in relation to labour market regimes includes tax, National Insurance and relief at source pension contributions deducted by employers. The Universal Credit system does not add these back in, as they are already included in the data from HMRC. 
 
Payroll giving is not included in monthly earnings for the purpose of allocating a claimant to a labour market regime."

This mentions RAS pension deductions but not NET pay arrangements. 

The jobcentre acknowledged their guidance states gross earnings. They said they have already questioned this as the system does not seem to be recognising pension deductions, and that the answer received was that it's based on taxable pay. With NET pay arrangements the pension deductions are removed prior to tax being considered so it seems they do not count towards the AET. 

If I'm reading the responses on here correctly, the jobcentres stance here is wrong?

The short answer is yes, they are wrong. 

The long answer:
What matters is what the legislation says, for earnings thresholds refer to regulation 90 (6) which states;

(6)  A person’s monthly earnings are:

(a)[the person’s] earned income calculated or estimated in relation to the current assessment period before any deduction for income tax, national insurance contributions or relievable pension contributions; or

(b)in a case where the person's earned income fluctuates (or is likely to fluctuate) the amount of that income calculated or estimated before any deduction for income tax, national insurance contributions or relievable pension contributions, taken as a monthly average

      (i)where there is an identifiable cycle, over the duration of one such cycle, or

      (ii)where there is no identifiable cycle, over three months or such other period as may, in the particular case,            enable the monthly average to be determined more accurately

6(a) is clear, the amount to be used in relation to earnings thresholds is gross earnings before any deductions for tax. NI and relievable pension contributions.  Income tax and NI is self explanatory, relievable pension contributions are defined in regulation 53;

“relievable pension contributions” has the meaning in section 188 of the Finance Act 2004

Section 188 of the Finance act 2004 is here,   https://www.legislation.gov.uk/ukpga/2004/12/section/188

.As long as someone's pension contributions qualify as 'relievable contributions' according to that legislation then they cannot be deducted from the gross earnings used when calculating whether or not someone reaches a relevant earnings threshold.  The method of contributions, be it via a net pay agreement or relief at source, is not a qualifying factor anywhere in that legislation.

For completeness, pension contributions made via salary sacrifice would not count towards any earnings thresholds.as these are not employee contributions..

Rachelw99213_

Really sorry guys as I said I'm not good with figures and I don't quite understand all the finance act terms. 

 I went for my job center work commitment review and the lady brought her manager across to me as I showed them my pay slips which showed my salary and she said as my pension is classed as salary sacrifice then that's the reason why I am under the AET and now need to earn more money so I will have to find extra hours. I asked them to look into it previously and they told me they had referred it to the Payments team who all agreed that this is due to the type of pension scheme I'm paying into. 

If anyone thinks this is wrong should I go to my MP? Or are you saying that they are right and I need to earn extra money to be above the AET?

Hope this all makes sense what I'm trying to ask. 

Rachelw99213_

KaMelo your quote below, Not sure what you mean? I contribute as an employee from my wages every month.

For completeness, pension contributions made via salary sacrifice would not count towards any earnings thresholds.as these are not employee contributions..

alchemist777

pension contributions made under a net pay arrangement—where contributions are taken from your salary before tax is applied—are already factored in before calculating your gross taxable earnings.

Here's how it works:

• If you make pension contributions under a net pay arrangement (e.g., through your employer), those contributions are deducted from your salary before tax is calculated. This means that your gross earnings reported to HMRC (and used for AET purposes) are already reduced by the amount of your pension contributions.
• The Real-Time Information (RTI) system typically reports gross taxable earnings, which already accounts for these net pay pension deductions.

Key points:

• Your gross earnings for AET purposes should already reflect any pension contributions made under net pay arrangements.
• If your pension contributions are made after tax, they will still not reduce your gross earnings for AET purposes because AET is based on the income before such deductions.

This means that your pension contributions do not further reduce the earnings considered for the AET calculation.

Yamor

alchemist777 said:

pension contributions made under a net pay arrangement—where contributions are taken from your salary before tax is applied—are already factored in before calculating your gross taxable earnings.

Here's how it works:

• If you make pension contributions under a net pay arrangement (e.g., through your employer), those contributions are deducted from your salary before tax is calculated. This means that your gross earnings reported to HMRC (and used for AET purposes) are already reduced by the amount of your pension contributions.
• The Real-Time Information (RTI) system typically reports gross taxable earnings, which already accounts for these net pay pension deductions.

Key points:

• Your gross earnings for AET purposes should already reflect any pension contributions made under net pay arrangements.
• If your pension contributions are made after tax, they will still not reduce your gross earnings for AET purposes because AET is based on the income before such deductions.

This means that your pension contributions do not further reduce the earnings considered for the AET calculation.

Where is this quote from?

the_pink_panther_2

@alchemist777 @yamor Thanks for that.  Apologies, I'm confused with all the terminology. Re-reading your post, it looks like you're saying (and I'm not totally sure of this) that for pension contributions made by net pay arrangements, the AET is calculated AFTER pension contributions have been made, rather than by using full gross earnings?  Or are you saying that the RTI feed should be picking people's work groups correctly? apologies, I'm not 100% what you are saying but I'm not to savvy with the terminology you're using so that's probably why.

I tracked this down, albeit thanks to @calcotti 's knowledgeable posts from some time back.  I believe it's the relevant legislation relating to AET groups 

ADM Chapter J2: Work Related Groups (publishing.service.gov.uk)

If you scroll to paragraphs J2091 and J2092:

 "Calculating monthly earnings for the purpose of work-related requirements

 J2091 In order to determine a person’s monthly earnings to decide whether work-related requirements apply, a monthly average of their earnings should be used.

J2092 The person’s monthly average should be determined 1. by the amount of the earned income calculated or estimated in relation to the current assessment period before any deduction for 1.1 income tax 1.2 national insurance contributions 1.3 relievable pension contributions1or

 2. where the earned income fluctuates (or is likely to), the amount of that income, calculated or estimated before any deduction for 2.1 income tax 2.2 national insurance contributions 2.3 relievable pension contributions "

Updated 11 Sept 2024 so must be current.

If I Google the term 'relievable pension contribution', I get this:

What does Relievable pension contribution mean?

A contribution paid to a registered pension scheme by or on behalf of a member of that scheme, unless one or more of the following exceptions applies.

A payment is not a relievable contribution if: (1) the member was aged 75 or over when the contribution was made; or (2) the contribution is paid by the member's employer; or (3) the payment is an age-related rebate or a minimum contribution paid by HMRC to a contracted-out pension scheme under the Pension Schemes Act 1993, ss 42A(3), 43 or the corresponding Northern Ireland legislation; or (4) it is a life assurance premium contribution in accordance with the Finance Act 2004, 195A.

So I believe that this means that AET is always based on earnings before any relievable pension contributions, regardless of how they are made (net pay or otherwise).