Universal credit and earned income - pension contribution deduction from UC

cybertortoise

Good evening all,

I'm trying to find out what counts as earned income for the purposes of Universal Credit. 

For example, is my pension contribution income or ignored? The whole thing or only part?

What if I receive a tax refund? Is that deducted from my UC at the same rate as my wages are? 

The wage amount shown on my UC statement for a given month has never correctly reflected my actual wages since I started working at my employer 2 years ago. I understand that HMRC tells UC what I earned, but I'm trying to find out if I am missing something obvious before I ask them to investigate further.

Example month - 

Gross wages: £2283.75

          PAYE £209.40

          NI A £96.96

          Pension £187.58

          PG loan £30

          Electrical goods £218.79 (deducted from wages via work scheme)

Net pay: £1540.98

If I assume net pay plus elec goods are both earned income that should give me £1759.77, but my UC statement says I earned £1867.57. This is a difference of £107.80.

I wondered if part of my pension contribution was deducted but that would be 57.46% of my pension contribution which seems an arbitrary number. 

If I check online I can only find information saying 100% of pension contributions are disregarded, but when I asked in my online journal I was told "the deduction for your pension contribution is not disregarded when using earnings to calculate your UC entitlement". But looking at my statement under earned income it says 'Take-home pay is what's left after tax, National Insurance and any pension contributions have been deducted'.

Which is correct? Every one of my pay periods has had a discrepancy between the money HMRC says I received, and the money I actually received. 

Thanks for any info you can give.

Grumpy_chap

I don't think the pension contributions can be disregarded if the UC calculation is based on nett pay £1,541.  That has already removed the pension contribution, so if it was disregarded in addition, that would be double-counting the pension contribution.

For clarity, what are the "electrical goods"?  Is that a SS (salary sacrifice) computer scheme, or similar?

huckster

UC uses what your employer has input into HMRC system as the wages paid during the assessment period.(AP)

Gross taxable pay
Less Income tax
Less NI
Less pension

Tax rebates counted as income during AP received.

Either you are not matching the correct wage slip to what UC has used or your employers are reporting a different gross taxable pay amount to HMRC than is shown on your wage slip.

The wages UC has used are broken down on the UC system, so you can ask UC for a breakdown via your journal
E.g. what wages pay date, what gross taxable pay etc.  And then once you have this information you can then try to reconcile with your wage slips and company payroll.

cybertortoise

Thanks for your replies

@Grumpy_chap The electrical goods is salary sacrifice yes, sorry should've made that clear.

@huckster thanks I'll request that

Grumpy_chap

cybertortoise said:

I wondered if part of my pension contribution was deducted but that would be 57.46% of my pension contribution which seems an arbitrary number. 

I just thought about this.
Is all of the pension figure (£187) employee contribution?
Looking at the figures, it would have to be to get from the gross (£2,283) to the net (£1,540) but what is the employer pension contribution?
Is it possible that UC have made some adjustment to add back in the employer pension contribution?

Looking at the figures presented, I cannot see a way to get the UC statement earned (£1,867) by any combination of addition and subtraction.

Hopefully, it will become more obvious when the clarification is received of exactly which month payslip has been used by UC.

cybertortoise

I have worked it out!

Pensionable pay = £2259.95

minus pension = £187.58

Leaves taxable pay = £2072.37

minus tax = £204.80

UC based on = £1867.57

Meaning my student loan repayments (expected) and NI contributions (not expected) are being counted as income, is this correct for UC purposes?

@Grumpy_chap that's all my contribution, employer one is not shown on my payslip. I've figured out the figures as above. 

NedS

cybertortoise said:

I have worked it out!

Pensionable pay = £2259.95

minus pension = £187.58

Leaves taxable pay = £2072.37

minus tax = £204.80

UC based on = £1867.57

Meaning my student loan repayments (expected) and NI contributions (not expected) are being counted as income, is this correct for UC purposes?

@Grumpy_chap that's all my contribution, employer one is not shown on my payslip. I've figured out the figures as above. 

No, not correct. Your NI conts should definitely be deducted.

UC should take your GROSS income and deduct any tax, NI and pension contributions to obtain your net earnings for UC.

Your student loan repayments and deductions for any work schemes (electrical goods) should not be deducted.

If you are sure they are not doing it correctly, you should go into the jobcentre with your payslip(s) to query it, and ask them to raise an RTI dispute - this is where DWP will query with HMRC to determine if your earnings have been reported correctly.

cybertortoise

Just a quick update - 

On the 20th I called the UC helpline and they said my NI contributions should NOT be classed as income, but that they could not tell me what my breakdown was as they (UC) aren't HMRC and don't need to see what my tax, pension etc were. They base my entitlement on a single figure they get from HMRC.

At the time I was on that call I got a response to my UC journal message from the 18th, stating this is your breakdown of the last months wages including every deduction. I then responded to that message in my journal saying my NIC had been classed as earned income since I started work almost 2 years ago. The advisor has raised an earnings dispute for the last 2 years, I don't know how long that will take but will update again once it's done. 

This whole thing has me wondering how many other working people on UC are having the entitlement calculated on incorrect earnings. I did highlight this issue in March 2024 and was told my pension contribution was NOT disregarded for UC purposes so didn't think much more of it at that time.

NedS

cybertortoise said:

Just a quick update - 

On the 20th I called the UC helpline and they said my NI contributions should NOT be classed as income, but that they could not tell me what my breakdown was as they (UC) aren't HMRC and don't need to see what my tax, pension etc were. They base my entitlement on a single figure they get from HMRC.

At the time I was on that call I got a response to my UC journal message from the 18th, stating this is your breakdown of the last months wages including every deduction. I then responded to that message in my journal saying my NIC had been classed as earned income since I started work almost 2 years ago. The advisor has raised an earnings dispute for the last 2 years, I don't know how long that will take but will update again once it's done. 

This whole thing has me wondering how many other working people on UC are having the entitlement calculated on incorrect earnings. I did highlight this issue in March 2024 and was told my pension contribution was NOT disregarded for UC purposes so didn't think much more of it at that time.

If there is a mistake, it will almost certainly be by your employer not reporting your earnings and deductions correctly to HMRC

The steps in the process are:

1. Your employer reports your earnings each pay period to HMRC. The should report your GROSS earnings, tax deducted, NI contributions, pension contributions and any other deductions.

2. HMRC shares the reported data with UC

3. UC calculates your UC entitlement based on the reported/shared data.

Steps 2 and 3 are automated and computers do not make mistakes, they do what they are programmed to do and as the system works for 99.99% of people, it's unlikely to be making a mistake just for you. Step 1 is the only step that involves human input, and this is almost certainly where the error (if there is one) is occurring.

The earnings dispute will raise it with HMRC who will contact your employer to clarify the situation.

Do you have an HMRC account? If so, you can log in and see exactly what your employer is reporting to HMRC each month. If you don't have an account, now might be the time to create one.

cybertortoise

Hi @NedS that's what I thought. But I didn't understand how UC could know all of my deductions to the penny, yet my NICs are being treated as income. 

I do have a personal tax account and can see the income tax and NI paid on each month during this tax year. 

The amounts reported by my employer are correct in so far as I can see. The personal tax account shows taxable pay, tax paid, and NI. All are correct. Except in the totals row at the bottom, NI paid says zero despite showing payments of £527.15 since April 2025. 

It says underneath the table "Your employer sent the individual and total amounts in the table above.The individual amounts do not add up to the total. When this happens we use the total amounts as your figures for the tax year."

And checking back on previous years the totals are zero for NI paid despite showing every monthly payment in that column. Yet my NI record for the 2024/25 tax year says full contributions and I paid £1437.29 - so they know my NI has been paid! 

huckster

Very strange. UC receives HMRC RTI earnings data for millions of claimants. From what I have seen 99% are correctly reported.

If the earnings data on your claim is wrong, it is most likely how your employers are reporting the data. 

Now that an RTI dispute has been raised, If UC RTI team cannot spot any errors on UC side, they will refer onto HMRC who may then contact your employers to try to resolve.