Why Universal Credit Depends on Real Time Information

Information in the UniverseUniversal Credit is a new payment that replaces 6 benefits, including Working Tax Credit and Child Tax Credit. It has been under the spotlight recently, with MPs pointing out some of its problems and calling for a delay in the planned roll-out.  Universal Credit is designed to reduce automatically if an employee’s income increases and, for this reason, its success is dependent on employers reporting their payroll information via Real Time Information.

In an emergency debate on 24th October, Stephen Timms, the Labour MP for East Ham, explained the link between payroll and Universal Credit, along with his concerns. He said, “Under Universal Credit, everybody’s monthly pay is automatically sent to Her Majesty’s Revenue and Customs through the pay-as-you-earn RTI – real-time information – system, and HMRC then sends that to the DWP so that it can do the Universal Credit calculation. There have been rumours for some time that the RTI system does not work very well. I have tabled questions about that, but the Minister has flatly denied that there is a problem.”

Not satisfied with the Minister’s response, Stephen Timms obtained an answer from the Treasury that, “during the 2016/17 tax year approximately 590m payments to individuals were reported via RTI. 5.7% of these were reported late. HMRC does not hold the information in respect of missing and incorrect reports.”

Real Time Information is used primarily for reporting tax, NI and similar information to HMRC. For this purpose, it is not important that the information is reported on the day the employee is paid. For Universal Credit, however, prompt reporting is essential, and this is the reason why HMRC requires submissions to be made “on or before” the payment date.

The most controversial aspect of Universal Credit at the moment is that claimants must wait a long time for their first payment, during which period they may endure great hardship. There have also been problems caused by incorrect or late earnings information being used by DWP, but these issues are currently receiving less attention, both in Parliament and in the media.

Employers should keep in mind that the Real Time Information they send to HMRC is used for calculating Universal Credit. They may, therefore, receive enquiries from employees who have had their payment miscalculated by DWP, especially during the period when Universal Credit is rolled out in their area.

Steven Tucker

By Steven Tucker - Co-founder

Steven is one of the founders of The Payroll Site. He writes about things affecting small businesses, especially those things connected with payroll. He's also a Maths graduate and a Chartered IT Professional and has a few views about technology, maths and the misuse of both.