As payroll professionals, we occasionally receive queries from clients about discrepancies between the figures we’ve submitted via FPS (Full Payment Submission) and the amounts HMRC has forwarded to the Department for Work and Pensions (DWP).
These discrepancies can directly impact an employee’s Universal Credit payments, and it’s important to understand how to handle these situations properly.
When figures don’t match, what should happen?
In the vast majority of cases (we’re talking 99% of the time), when there’s a mismatch between submitted FPS figures and what DWP has received, the issue lies somewhere in the chain between HMRC and DWP.
Payroll bureaus don’t act on behalf of individual employees, which means it’s the employee themselves who must take action.
The employee’s first steps
We recommend that employees contact DWP directly by telephone on 0800 328 5644.
Before making the call, they should gather their relevant payslips and be prepared to clearly explain the discrepancy.
For example, a recent case we encountered involved DWP holding net pay information that didn’t match what had been sent via RTI (Real Time Information).
If the employee encounters difficulties resolving their query, they should request a ‘mandatory reconsideration’. This is a crucial part of the appeals procedure designed specifically to resolve UC queries.
Common issues that affect Universal Credit claims
Let’s look at some of the most frequent culprits behind UC discrepancies:
Pay frequency issues
This typically affects one month in particular and can result in earnings appearing doubled within an assessment period. It’s one of the more common problems we see.
Late RTI submissions
When RTI data is submitted late, it can distort the figures held by DWP, meaning earnings won’t be correctly allocated to the relevant pay periods that DWP uses for assessment purposes. While we can’t always establish if this is the underlying cause, it’s worth considering.
Pay increases
A straightforward one, but worth mentioning – any pay rise will naturally affect the amount of UC an employee can claim.
What counts as income for UC purposes?
Understanding what DWP considers as income is fundamental to grasping how UC calculations work.
Earned income
Earned income is defined as remuneration or profits derived from:
- Employment under a contract of employment
- A trade or profession (relevant for self-employed individuals)
- Any other work (a useful catch-all provision)
Notional earned income
This is where things get interesting. Notional earned income covers situations where a claimant has deliberately deprived themselves of earned income, or where an employer has arranged for some income to be foregone to keep reported income at a certain level. DWP treats such arrangements as income when calculating UC.
Employed earnings – the detail that matters
As a payroll bureau, we primarily deal with employed earnings. The fundamental principle is that UC is based on income actually received by an employee during a specific period. This is precisely why issues arise when RTI submissions span two periods.
According to Section 7(3) of ITEPA 2003, employed earnings include any salary, wage, fee, gratuity, or other profit of any kind, provided it constitutes money or ‘money’s worth’. In practical terms, money’s worth means something with direct monetary value (like net pay deposited into a bank account) or something that can be converted into money.
There was a fascinating case early in my PAYE career involving a director paid in platinum sponge. The argument that this wasn’t money’s worth was rejected by the Tax Tribunal because platinum sponge could be traded and therefore exchanged for cash.
What’s included and what’s not
Earned income includes all statutory payments (SSP, SMP, and so on). However, pension contributions made during the relevant period are not included in earned income. With auto-enrolment now firmly established in the PAYE system, this exclusion affects most employees.
The payrolling of benefits in kind
The payrolling of benefits in kind presents some interesting challenges for DWP. We must return to the basic principle that there must be ‘money’s worth’ to determine what income is relevant for UC assessment. Therefore, many benefits in kind won’t be taken into account, including:
- Company cars and vans, including related fuel benefit
- Living accommodation provided by the employer
- Medical benefits
- Employment-related loans (provided there’s an expectation of repayment; if not repaid, they become remuneration and will fall into UC calculations)
- Most other benefits in kind
Salary sacrifice – an important distinction
Salary sacrifice arrangements are particularly interesting because they appear to contradict the notional earned income rules. However, there’s an important distinction. With a salary sacrifice, the employee forgoes income through a formal change to their employment contract in exchange for a benefit that doesn’t
have money’s worth (pension contributions fall into this category, despite having eventual monetary value albeit later in life). Because of this structure, salary sacrifice amounts don’t connect to UC calculations.
In summary
Universal Credit calculations can be complex, and discrepancies between payroll submissions and DWP records are not uncommon. The key is knowing the proper channels for resolution and understanding what counts as income for UC purposes.
While we as payroll professionals submit accurate RTI data, it’s ultimately the employee’s responsibility to pursue any queries with DWP directly.
If you have questions about how your payroll submissions might affect employee Universal Credit claims, or if you’re experiencing issues with RTI submissions, we’re here to help guide you through the process.
