How Earnings Reduce Universal Credit: The Taper Rate Explained

Universal Credit does not stop when you start earning. Instead, your payment is gradually reduced as your earnings rise, through a mechanism called the taper. The taper rate is 55%: for every £1 you earn above your work allowance, your Universal Credit is reduced by 55p, and you keep 45p¹. If you do not get a work allowance, the taper applies from the first pound you earn³.

That 45p is yours before Income Tax and National Insurance are taken off. Tax and National Insurance are then deducted from your pay separately, so the amount you keep of each extra pound depends on your total earnings and tax code.

The taper is not a penalty or a sanction. It is how Universal Credit is designed to work: it means that working always leaves you better off than not working, even if the gain is smaller than the headline wage suggests. Understanding how it operates, and where the work allowance fits in, helps you work out what a job or extra hours will actually mean for your household budget.

Universal Credit taper rate: 55p for every £1 earned

The taper is a reduction to your Universal Credit based on your earned income⁶. It applies to earnings above your work allowance, or from the first pound if you do not have one. The Department for Communities in Northern Ireland puts it plainly: for every £1.00 you or your partner receives above the work allowance, you keep 45p⁴. The same rule is set out in legislation: regulation 22 of the Universal Credit Regulations 2013 specifies a 55% deduction applied to earned income above the work allowance⁷.

The taper applies to your household's total earnings. If you claim as a couple, both partners' earnings count towards the same calculation, and the 55p reduction applies to the combined amount above the work allowance¹. This means a second earner's wages reduce the household's Universal Credit in the same way as the first earner's, from the first pound above the allowance.

The taper is applied automatically each month based on the earnings reported by your employer. You do not need to calculate it yourself or tell the DWP what to deduct. Your Universal Credit payment will already reflect the reduction².

How the taper reduces your payment as earnings rise

The taper works as a sliding scale. Below your work allowance, your Universal Credit is unaffected by earnings. Above it, every pound of earnings reduces your payment by 55p. The reduction continues until your earnings are high enough that your Universal Credit reaches nil⁸.

The calculation method is straightforward: multiply the earnings above your work allowance by 0.55 to get the reduction⁶. The result is subtracted from your maximum Universal Credit award. So £100 of earnings above the work allowance reduces your payment by £55, and £200 reduces it by £110.

The maximum award varies by household circumstances, and the taper cannot reduce your payment below zero. Once your earnings are high enough that the 55% reduction wipes out your Universal Credit entirely, your claim ends.

Earnings above the work allowance, and when there is none

The work allowance is the amount you can earn each month before the taper starts to reduce your Universal Credit. Not everyone gets one. Whether you have a work allowance depends on your circumstances, specifically whether you are responsible for a child or have limited capability for work⁵.

If you have a work allowance, your Universal Credit is not reduced at all until your earnings exceed it. Only the amount above the allowance is tapered at 55%. If you do not have a work allowance, every pound you earn is tapered from the first pound³.

The work allowance is not a fixed amount for everyone. It varies depending on whether you get help with housing costs through Universal Credit. The exact figures are set by the government and updated annually.

For self-employed claimants, different rules apply. The Minimum Income Floor may be used to calculate your earnings, which can affect how the taper applies⁹. If your actual earnings are below the Minimum Income Floor, Universal Credit may be calculated as if you were earning that amount.

From 65% to 63% to 55%: how the rate has changed

The taper rate has been changed by successive governments. When Universal Credit was first introduced, the taper rate was 65%. In November 2016, it was cut from 65% to 63%¹¹. Then, from 1 December 2021, it was cut again to 55%⁶. The current rate of 55% has been in place since then.

The direction of travel has been towards a lower taper rate, which means claimants keep more of each pound they earn. A lower taper rate reduces the financial penalty for working more hours and is intended to strengthen the incentive to increase earnings.

Is the taper rate the same for everyone on Universal Credit?

Yes. The 55% taper rate applies to all Universal Credit claimants with earnings above their work allowance. There is no higher or lower rate for different groups. What differs is the work allowance: some claimants get one, some do not, and the amount varies depending on whether they receive help with housing costs⁵.

The taper rate is also distinct from other deductions that can reduce your Universal Credit. These include deductions for debt repayments, which are capped at 15% of your standard allowance, down from a previous maximum of 25%¹². The taper and these deductions operate separately: the taper reduces your award based on earnings, while deductions reduce it to repay debts or other obligations.

If you have savings between £6,001 and £16,000, a separate rule applies. For every £250 (or part of £250) over £6,000, £4.35 is added to your monthly income when your Universal Credit is worked out¹³. This is called tariff income and it reduces your award in addition to any taper on earnings.

Is the taper worked out on my pay before or after tax?

The taper is applied to your earnings before Income Tax and National Insurance are deducted. Your employer reports your gross pay to HMRC, and that figure is used to calculate your Universal Credit⁶. Tax and National Insurance are then taken from your pay separately.

This means the combined effect of the taper and tax can be significant. The taper takes 55p of each £1 above your work allowance, and Income Tax and National Insurance come out of your pay on top of that. The exact amount depends on your total earnings and tax code.

Pension contributions work differently. Every £1 you pay into a pension reduces the earnings used to work out your Universal Credit by £1¹⁵. Because the taper is then applied at 55%, paying £100 into a pension would normally make your monthly Universal Credit award £55 higher¹⁶. Your take-home pay is lower by the amount you contributed, but your pension pot is higher and your Universal Credit is less reduced.

Why do some sources still say the taper rate is 63%?

The taper rate was 63% before 1 December 2021⁶. Any guidance, article or calculator that has not been updated since then may still quote the 63% figure. This includes some older government publications and third-party benefit calculators.

The 63% figure is not wrong for the period before December 2021, but it does not reflect the rate that applies now. If you are using a calculator or reading guidance that quotes 63%, check the date it was last updated. The current rate is 55%.

The change from 63% to 55% took effect from 1 December 2021. It was accompanied by a change to the work allowance rules. The taper rate has not changed since.

What happens if your earnings are high or irregular

If your earnings are high enough that the 55% taper reduces your Universal Credit to nil, your claim will end. You will keep 45p of each £1.00 you earn until your earnings are too high to get Universal Credit¹⁷. At that point, you may still be entitled to other support, such as help with housing costs through your local council or a council tax reduction.

If your earnings are irregular, the taper is applied separately in each assessment period. A month with high earnings will see a larger reduction; a month with low earnings will see a smaller one. This can make your Universal Credit payments vary from month to month.

If you have surplus earnings, different rules apply. If your earnings are £2,500 or more over the limit, you will get no Universal Credit and the amount over £2,500 will be counted as earnings in the next assessment period¹⁸. This is designed to prevent claimants from receiving Universal Credit in one month and then claiming again immediately after a high-earning month.

Where to get help

If you are struggling to work out how the taper affects your Universal Credit, free and impartial help is available. Turn2us has a benefits calculator and guidance on earnings and Universal Credit. Entitledto also provides a calculator and detailed explanations of how the taper works.

For advice specific to your circumstances, you can contact Citizens Advice, your local welfare rights service, or a specialist charity such as Gingerbread for single parents. If you have a health condition or disability, Disability Rights UK provides guidance on how payments affect benefits.

If you think your Universal Credit has been calculated incorrectly, you can ask the DWP to reconsider the decision. The challenging a decision page explains how mandatory reconsideration works. If you are still unhappy, you can appeal to a tribunal.