How to simplify the complexity of surplus earnings

How to simplify the
complexity of surplus
earnings
Wednesday 1 July
Policy in Practice
webinar

Housekeeping
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● Audio check
● Please ask questions
● Poll and a survey
● Aim to finish by 11:30 with optional 15 mins extra
● Slides and recording will automatically follow
● We’re live tweeting via @policy_practice with hashtag #HelpfulPolicy

Today’s speakers
Janet Harkin
Head of
Marketing
Policy in Practice
@jharkin
Zoe Charlesworth
Head of Policy
Policy in Practice
@ZoeCharleswort1
Duncan Hatfield
Policy and
Operations Analyst
Policy in Practice
@drh000
Sue McCarron
Ask Us Wirral
Service Manager
Citizens Advice
Wirral
@WirralCAN
Peter Carter
Business Account
Manager
Policy in Practice
@petersgc_

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Agenda
www.policyinpractice.co.uk/software
● A simple guide to the SEISS, Universal Credit and surplus earnings rules
● Worked examples illustrating the challenge, and what to look out for
● How Wirral Citizens Advice helps people with fluctuating income
● Questions and answers
● Stay on for 15 mins for a Benefit and Budgeting Calculator demo (optional)

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Poll: What do your clients find most
difficult about irregular income?

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Over to Zoe

Evidence to the world of work inquiry
www.policyinpractice.co.uk/coronavirus
The increase in non-traditional working patterns provides an opportunity for those
with hidden barriers to work to engage with the labour market
However, flexible working patterns can also come with greater insecurity and do
not easily fit with benefit systems designed around full time regular work
This lack of fit between work and benefits means households risk having to
choose to engage with only one of these
1. Universal Credit does not work well for households who are not paid monthly
2. People who work zero-hour contracts do not see support when they need it.
3. Monthly work allowances do not respond to fluctuating earnings.
4. Monthly Assessment Periods do not adequately support self-employed
households
5. Fluctuating incomes can invoke complex surplus earnings regulations

Recap on measures put in place

Covid measures (1): Job Retention
Scheme
● Represented through PAYE before 19 March 2020, with a UK bank account
● Up until August 2020, CJRS pays 80% of the salary, up to £2,500, plus
employers NI contribution and minimum pension contribution
● Originally, could not undertake work for that employer and furlough must last
at least 3 weeks. After July, furlough can be part time
● The employer claims through HMRC
New rules
30 June Closed to new applicants. After this only those that have previously been furloughed
for 3 weeks can be furloughed. So final day for new furlough is 10 June
July 2020 Part-time furlough and minimum of 1 week
August 2020 Employer pays NI and tax
September 2020 Employer also pays 10% of wages (CJRS pays 70%)
October 2020 Employer also pays 20% of wages (CJRS pays 60%)

Covid measures (2): Self-employed
Income Support
● Open to those who have completed a self-employed tax return for 2018/19,
are currently self-employed, intend to remain self-employed and have lost
money due to Covid19
● Must have self-employed trading profits less than £50,000 in 2018/19 and
self-employment more than 50% of taxable income. Or over last 3 years.
● Average of 80% of trading profit calculated over last 3 tax years, up to
£2,500/month
● HMRC will invite claimants to apply and can apply up to 13 July 2020
● Grant paid as a lump sum and counts as business income for tax credit and
UC purposes
New rules
August 2020 SEISS 2 opens. This will cover 70% of profit capped at £2,250. Paid in one 3 month
instalment from August onwards

Surplus earnings
Surplus earnings regulations introduced to prevent abuse of the benefits system
Example
Someone arranges with their employer to pay all their annual salary of £30,000
in one month.
They won’t receive UC for that month but could claim full UC based on nil
income for the rest of the year.
If the person received monthly salary payments of £2,500 they would not be
eligible for UC

Surplus earnings
Who is affected?
● Surplus earnings apply to both employed and self-employed claimants
● Prior to Coronavirus most likely to affect those with 2 x monthly earnings or 3
x fortnightly earnings OR self-employed
● Now most likely to affect employees with backdated furlough payments and
those receiving SEISS

Surplus earnings
Surplus earnings will be applied to a new claim to UC where the claimant, or either
of joint claimants:
1. had an award of UC (the “old award”) that terminated within the 6 months
ending on the first day in respect of which the new claim is made and
2. has not been entitled to UC since the old award ended and
3. had total earned income in the final AP of the old award that exceeded the
relevant threshold
Where surplus earnings are to be applied to a new claim to UC, they will be
treated as earned income for the purposes of determining entitlement to UC, or
calculating the amount of that award where there is entitlement
If a claim is made after the six month period above, surplus earnings will not
be applied and the UC award will be calculated in the normal way
UC Regs, reg 54A(2)

Surplus earnings
Exception
Surplus earnings will not apply where the claimant has, or had at the time the old
award terminated, recently been a victim of domestic violence
UC Regs, reg 54A(5); 2 reg 98
Self-employed losses
Self-employed claimants can offset trading losses against earnings.
There is no limit to the time that losses can be carried forward as long as they
have not been offset against previous earnings

Surplus earnings
History
● Draft regulations had a de minimus of £100 (affects 40% of claimants)
● Regulations has a de minimus of £300 on the advice of the SSAC (affects
20% of claimants)
● From 2018 the DWP increased the de minimus to £2,500 in preparation for
managed migration pilot
“to provide for effective test and learn arrangements. The Committee
highlighted the importance of capturing learning around the formidable
challenges in communicating the policy to claimants”
● The £2,500 has been retained during Coronavirus measures (until March
2021)
● From April 2021 the de minimus will return to £300

Surplus earnings: example
Example
Mateo is single living in private rented accommodation
He is self-employed providing a mobile cocktail bar
Since lockdown his income has fallen to £0
Mateo receives £650 Universal Credit/month
In June, he received a Self-employed Income Support Scheme payment
(SEISS) of £7,500 (gross)

Calculate Nil UC amount:
Mateo’s nil UC threshold = ((Max UC – unearned income) /0.63) + WA
= ((£650-0)/0.63) + 0 = £1032
Calculate relevant threshold
Nil UC amount PLUS “de minimus” amount (£2,500)
= £1032+ £2,500 = £3,532
● If Mateo’s net earnings are over £3,532/month then surplus earnings
regulations will apply
● In June Mateo receives £7,500 (£5,800 net) from the SEISS so the surplus
earnings regulations apply

Calculation
Month 1
Income of £5,800 is above the relevant threshold of £3,532 so Mateo’s UC is NIL
Calculate amount to c/f to month 2 (original surplus): £5800 - £3532 = £2,268
Month 2
Income used is £2,268 c/f from the previous month
His UC is NIL
Calculate amount to c/f to month 3 (adjusted surplus): £2,268 - £3532 = NIL
Month 3
Mateo receives full UC of £650

Surplus earnings: impact on household
income
Impact

Surplus earnings: impact of SEISS
Impact
From March to August Mateo receives £8,400
Without the grant he would have received £3,900 (6 payments of UC)
So, the grant is worth £4,500 (not £7,500 gross / £5,800 net)
There are implications for advisors due to complexity
There are implications for the claimant in order to budget

Surplus earnings: complications
● Combined surplus earnings of joint claimants if they form a new partnership.
● If the claimant moves from a joint claim to a single claim 50% of surplus is
taken into the single claim
● Minimum Income Floor applies after calculation of surplus earnings
● Before May 2020: the claimant had to reclaim each month. However,
reclaiming if income goes up could increase the surplus. The general rule for
clients was to reclaim if earnings reduce in order to “use up” the
surplus earnings but not reclaim if earnings increase
● From May 2020: special arrangements under Coronavirus. The DWP will
presume that the claimant has reclaimed each month (for up to 5 months) and
automatically reinstate UC if appropriate. This is discretionary and there is
some confusion about how this will work

Identify to household level with LIFT

Surplus earnings: benefit calculator

252525
Over to Duncan
Worked example live in the Benefit
and Budgeting Calculator

262626
Over to Sue McCarron, Citizens
Advice Wirral

Please introduce yourself and Citizens
Advice Wirral

What three main issues are your
clients facing with fluctuating income?

Can you give us a case study showing
how you helped a client deal with the
issue?

303030
Questions and answers

● Blog post: How do the surplus earnings rules work in practice?
● For up to date information on the welfare support available see
www.policyinpractice.co.uk/your-income-and-coronavirus-covid-19/
● Follow up email with webinar recording and slides, with links
● Short survey to follow
● Next webinar:
○ How data analytics helps councils look to recovery on Wed 6 August
at 10:30
Practical tools that can help
www.policyinpractice.co.uk/events

323232
Would you like to stay for a 15 minute
demo of how the Benefit and
Budgeting Calculator helps you give
more support?

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Thank you
Zoe Charlesworth, Policy in Practice
Duncan Hatfield, Policy in Practice
Peter Carter, Policy in Practice
Sue McCarron, Citizens Advice Wirral
hello@policyinpractice.co.uk
0330 088 9242

343434
Over to Peter for a quick look at the
software

1. Focus on one cohort with LIFT

2. Identify to street level with LIFT

3. Identify to household level with LIFT

4. Understand a household’s journey

5. Track outcomes over time with LIFT

404040
Thank you
hello@policyinpractice.co.uk
0330 088 9242

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