Working Tax Credit Ending: What Does it Mean for Employers?

Posted on Friday, 18th Nov '22

Duane Jackson by Duane Jackson

As part of the move to Universal Credit, the existing tax credit system is going. This includes credits for employees such as Child Tax Credit, Income Support, Employment and Support Allowance as well as Working Tax Credit.

All of these will, by 2024, be replaced by Universal Credit. This is a single system designed to offer more flexibility when it comes to working, earning and finding work. With this monumental change to the benefits and welfare system, there will also be changes to payroll, managing pay runs and hopefully, increased options for employers to offer those on benefits more flexible options.

What is Working Tax Credit?

Working Tax Credit is a means-tested benefit paid to those who work over a certain number of hours a week and are considered to be on low income. It’s a top-up to existing earnings, rather than replace earnings. While there’s no limit on how many hours a person can work, and how much their pay is for those hours worked, it is instead very situational and can easily differentiate between two seemingly similar couples or families. It is based on the number of earnings you need to be able to live without cutting out essentials.

You can be self-employed and get working tax credit, or you could be in a couple, with children and get working tax credit. It is designed to allow people to work while providing a secure income. However, you must work a certain number of hours a week in order to qualify.

Circumstance Hours a week 
Aged 25 to 59 At least 30 hours 
Aged 60 or over At least 16 hours 
Disabled At least 16 hours 
Single with 1 or more children At least 16 hours 
Couple with 1 or more children Usually, at least 24 hours between you (with 1 of you working at least 16 hours) 

When is Working Tax Credit ending?

While there is no exact date, all those on Working Tax Credit will be moved to Universal Credit by the end of 2024. The migration is currently ongoing, and many people are now using Universal Credit.

What other benefits are going?

Alongside Working Tax Credit, child tax credit, housing benefits, income support, income-based jobseeker’s allowance (JSA) and income-related employment and support allowance (ESA) are being replaced with Universal Credit.

How will Universal Credit affect my employees?

For employees, there is greater flexibility to take on more hours and overtime, as well as seasonal work. This means that if you have employees who are currently on a 16-hour limit to avoid benefits being cut, they can now work more hours if they so wish.

Universal Credit is paid monthly, similarly to a work pay cycle. There are two ways Universal Credit will work, either simply based on the amount they earn compared to their means-tested needs or based on a Work Allowance, which is a monthly earnings cap.

On a Work Allowance, earnings above their cap see a reduction in Universal Credit, at a rate of 55p for every £1 above the cap earnt.

How will Universal Credit affect my business?

Universal Credit will hopefully benefit your business. Whether you employ seasonal staff or only have sporadic hours available to work, Universal Credit helps you to get employees who have no hourly cap.

Part of the new Universal Credit scheme involves a work coach for claimants, so they are better prepared for work, and how a monthly work payroll cycle means they have to budget..

A Christmas tree farm, for example, really only needs workers in a short three-month period before and just after Christmas. This is how Universal Credit claimants could now work with them.

A claimant who receives their benefit on the 15th of the month begins work and is paid monthly on the 1st of every month. In the first month they are employed they still get a larger amount of Universal Credit allowance as they have earned some money, but as it’s calculated from the 15th-15th, two weeks’ earnings are not seen as a lot. By the next month, as work gets busier, they no longer need Universal Credit and the claim is paused. The same the following month. The final month, when they receive their last paycheck of any overtime and tips, the claim is restarted, and they begin to receive Universal Credit as their earnings have once again dipped below their means-tested limit. As there is no work-hour limit, a claimant can work this seasonal job without the fear of their benefits being cut completely.

And, for parents entering the workforce, Universal Credit allows them to claim back up to 85% of registered childcare costs, allowing parents to work around their childcare commitments with no worries about hourly caps.

Universal Credit requires accurate payroll

As PAYE is used to calculate the exact amount of Universal Credit, your employees are relying on you to send over timely and accurate information so they can get the money they need.

Staffology Payroll can help with this. Our cloud-based and easy-to-use payroll system helps you to calculate PAYE accurately and efficiently. As we have integrations with leading time and attendance platforms, you can automatically connect hours worked with hours paid at the click of a button.

Why not try Staffology today? Get a demo now.

Duane Jackson, November 18th, 2022

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