Revisiting the UC grace period

Introduction

Universal credit (UC) claimants may be exempt from the benefit cap on a number of grounds – those with a consistent work history are exempt during a ‘grace period’. This grace period is the focus of this article.

The relevant rule

Regulation 82 of the Universal Credit Regulations 2013 provides for two things:

• exemption from the cap for people whose earned income is above the level set out in regulation 82(1)(a) (currently £617 a month); and
• as set out in regulation 82(1)(b), an exemption from the cap for people with a consistent work history – who can benefit from a ‘grace period’.

In brief, the basic structure of regulation 82 is as follows.

• Subparagraph (1) states that the benefit cap does not apply to an award during a grace period.
• Subparagraph (2) sets the beginning of the grace period (if a grace period can be applied) as being either a day within the current period of UC entitlement on which earnings fell below a certain level or, alternatively, on the day after someone ceased paid work before claiming UC. Select the most recent of the two days in respect of which the condition in subparagraph (3) is met.
• Subparagraph (3) requires that the day set by subparagraph (2) must be preceded by 12 months in which the earnings in each of those months was above the amount determined under regulation 62(1)(a) (currently £617 a month but, as this figure is determined with reference to the national minimum wage at the time (regulation 82(5)), it will be necessary to calculate the appropriate figure for the month in question).

Partners

The earnings in subparagraph (3) could have been earned:

• by the claimant on her/his own;
• as a combination of the claimant and her/his partner’s income;
• as a combination of the claimant and her/his ex-partner’s income (while the claimant was part of a couple with the ex-partner); or
• as a combination of the claimant’s partner’s and ex partner’s income.

Earnings from an ‘ineligible adult’ in the UC claim are included when assessing the grace period even if s/he is not entitled to UC in her/his own right.1 Presumably this refers to partners who have failed the habitual residence test, are persons subject to immigration control, etc.

If a claimant is unable to provide earnings information for an ex-partner (this might, for example, be relevant in cases involving domestic abuse), a claimant could ask the DWP to find the information, or ask a tribunal to direct the department to do so.2

Earnings, statutory payments and MA

3

The DWP appears to accept that, where someone claims UC after statutory payments come to an end, s/he is regarded as having ceased paid work (for regulation 82(2)(b)) on the day after the last day in respect of which the statutory payments were made.

Problems can arise if someone delays claiming UC once her SMP (for example) comes to an end. Someone may, despite not having returned to work, receive payments of accrued holiday pay or other small payments in the months following the end of her SMP leading the DWP to determine that her earnings were not at the required level. Someone affected by this problem could argue that those payments, despite being earned income, were received after the claimant ceased paid work.

Maternity allowance (MA) is not regarded as earned income and so will not help people to meet either the level of earnings set out in regulation 82(1)(a) or the level of earnings over the 12-month period specified in regulation 82(3). CPAG challenged the difference in treatment between SMP and MA on the basis that it was discriminatory or, alternatively, was irrational.4 These arguments were rejected and CPAG is seeking permission to appeal.5 This is particularly harsh for women who are self-employed, recently changed employer, or had to rely on SSP due to illness during pregnancy. Hopefully, local authorities would look favourably on discretionary housing payment applications in this situation.6

Other issues

Someone who does not cease paid work but whose earnings reduce can lose out on a grace period if s/he delays claiming UC. This is because the first day of her/his potential grace period will be the first day of the assessment period in which her/his earnings fall below the required level – ie, her/his first day of UC entitlement. If s/he has delayed too long, then the first day of her/his potential grace period may be preceded by a month in which her/his earnings were lower than the required level. These people are penalised if they don’t claim UC as soon as possible rather than spending a couple of months living on savings or waiting to see whether there are any better job opportunities. An adviser with a client in this situation may like to contact CPAG for advice.

People who lose employment part way through a month and receive a lower than usual pay packet sometimes miss out on the grace period. Often, this is because the DWP has only considered the most recent earnings. However, these people will typically have received two pay packets in the month preceding their loss of employment, which together should be enough to meet the required level. This may not be the case for people who report self-employed income – leading the DWP to only consider the figure from the part month in which the individual ceased paid work. In these cases, advisers can ask the DWP to calculate a monthly income by calculating a pro-rata figure.

Real-time information (RTI) data or payment dates may be a starting point for grace period determinations, but this should be challenged where the information is not an accurate reflection of earnings over that time. Regulation 82(3) requires someone to have earned a certain amount each ‘month’ rather than ‘assessment period’. While RTI data and payment dates are relevant to allocation of earned income to assessment periods, there is no reason why grace period determinations should be done on this basis.