The new Universal Credit system will begin in April 2013. It represents a radical change to Welfare in the UK, and will eventually replace the current Tax Credit system.
The changes aim to simplify the welfare system, help get people back into work, reduce in-work poverty, and help detect fraud and error.
The legislation for Universal Credit is found in the Welfare Reform Act 2012. At the time of writing, this is only a general summary and it is still unclear precisely how it will all work.
The HMRC has said that Universal Credit will replace:
- Housing Benefit
- Income Support
- Child Tax Credits and Working Tax Credits
- Income based Jobseeker’s Allowance
(It will not replace Child Benefit)
The new system will start in the Greater Manchester and Cheshire and then be rolled out to the rest of the UK.
At first, it will only apply to new claimants. Those currently claiming Tax Credits will gradually be moved on to Universal Credit between October 2013 and 2018.
The Government has made a vague promise that no one will lose out through Universal Credit. The Department for Work and Pensions has said that it could see as many as 350,000 children and 500,000 working age adults move out of poverty. Other institutions, however, are less optimistic. The ICAEW has said that ‘by and large, the new system will be less generous to claimants than tax credits’.
What’s the difference between Universal Credit and the current Tax Credit system?
Again, the full details are not yet available. But some key differences will be that:
- Claimants will now receive a single monthly payment
- More people will be able to manage their claim online
- It will be available to those who are in work but have a low income
The amount of the single monthly payment will depend on an individual’s circumstances. It is made up of a single monthly allowance, supplemented by additional elements for childcare, limited capability for work, housing, and carers.
The single monthly payment is supposedly designed to reflect the salary system of those in work as the vast majority of people receive their wages monthly. According to the Government, Universal Credit will thus encourage claimants to take more responsibility for their finances, and prepare people for the transition into work.
What do you need to do if you currently receive Tax Credits?
The short answer is nothing. HMRC has made it clear that the Tax Credit Office will contact those affected by the changes. It will take a number of years for Universal Credit to totally replace Tax Credits, so don’t worry if you don’t hear anything straight away.
The DWP has produced a FAQ document which may be of interest.
For more information on Universal Credit, please do not hesitate to get in contact with us on 020 8780 2349.
This blog is a general summary. It should not replace professional advice tailored to your specific circumstances.