Redundancy and Universal Credit: How to Apply

Losing your job is unsettling at the best of times, and if you don't have other work lined up, sorting out your finances quickly becomes the priority. For most people of working age, that usually means making a claim for Universal Credit. The system is reasonably straightforward once you understand the basics, but there are a few points worth getting right from the start, particularly around how any redundancy payment affects what you can claim.

If you're dealing with redundancy and feeling stretched thin by everything you need to sort out, you might find it helpful to use our free Redundancy Action Plan.

What Universal Credit is and how redundancy pay affects it

Universal Credit is the main benefit for working-age people on a low income or out of work. It replaced six older benefits, including income-based Jobseeker's Allowance, income-related Employment and Support Allowance, and Housing Benefit for most working-age claimants. You get one monthly payment that covers basic living costs and can include help with rent and support for children.

To qualify, in most cases you need to be:

• At least 18 (some 16 and 17 year olds can claim in specific circumstances)
• Under State Pension age
• Living in the UK, with the right to claim
• Within the capital limits set by the DWP (see GOV.UK for the current figures)

Universal Credit is means-tested. That means your savings, your partner's income if you live with one, and any other money coming in will all be taken into account when working out your payment.

This is where people often get caught out. Universal Credit looks at both your income and your capital. If your redundancy payment takes your savings above the upper capital limit, you generally won't be entitled to Universal Credit until your savings drop below that level. If your savings sit between the lower and upper limits, you can usually still claim, but the DWP treats part of that capital as if it were generating an income, which reduces your monthly payment. This is sometimes called tariff income.

The exact figures change from time to time, so check the current capital limits on GOV.UK before you assume anything either way.

Statutory redundancy pay, contractual redundancy pay and pay in lieu of notice all generally count as capital once they reach your bank account, although the treatment of any final wages and holiday pay can be slightly different in the month they're received. If you're unsure how a particular element of your final pay will be treated, Citizens Advice can talk you through it.

New-style JSA and ESA

New-style JSA is a separate benefit that depends on your National Insurance contributions in the relevant tax years, not on your savings or your redundancy payment. If you've been working and paying Class 1 NI contributions, you may qualify regardless of how much redundancy pay you received.

This matters for two reasons:

• If your redundancy lump sum rules you out of Universal Credit because of the capital limits, you may still be able to claim new-style JSA on the basis of your contributions.
• You can claim new-style JSA and Universal Credit at the same time if you qualify for both, although the JSA payment counts as income when your UC is calculated.

New-style JSA is paid for a limited period and you'll be expected to look for work as a condition of receiving it. Income-based JSA is closed to new claimants. If you don't have enough NI contributions for new-style JSA, you'll usually need to claim Universal Credit instead.

If redundancy coincides with a health problem that means you can't look for work, new-style Employment and Support Allowance may be the right benefit rather than new-style JSA. The two are alternatives, not a pair: you claim one or the other depending on whether you're considered fit for work. Like new-style JSA, new-style ESA is based on your NI contributions and isn't affected by your savings or redundancy pay. Income-related ESA is closed to new claims, so people without sufficient contributions usually claim Universal Credit.

Redundancy Action Plan

Tell us about your situation and get a personalised step-by-step plan for dealing with redundancy. Covers finances, job hunting, benefits, and wellbeing.

Try our Redundancy Action Plan free, here on this site →

How to apply

Start your application on GOV.UK as soon as you know your job is ending. You don't have to wait until your last day. You'll set up an online account and use it throughout your claim.

You'll need:

• Your National Insurance number
• Bank, building society or credit union account details
• An email address and a phone number
• Details of your housing costs, including a tenancy agreement if you rent
• Information about your savings, investments and any other income
• Details of your redundancy payment and final pay

Be accurate when you declare your redundancy payment. The DWP and HMRC share information, so undeclared payments tend to surface later. Getting this wrong can delay your claim or lead to an overpayment you'll have to repay, sometimes with a penalty on top.

After you submit your claim, you'll usually be asked to attend an appointment at your local Jobcentre to verify your identity and agree what's called a Claimant Commitment. This sets out what you've agreed to do in return for your payment, normally activities related to looking for work. If you can't meet what's been agreed without good reason, your payment can be reduced through a sanction.

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When you'll be paid, and help with rent

Universal Credit is paid monthly in arrears, and the first payment usually arrives around five weeks after you apply. If you can't manage that gap, you can ask for an advance, which is then repaid out of future Universal Credit payments. Think carefully before taking one, because it does reduce what you get later.

If you rent your home, the housing element of Universal Credit can help with your rent. Housing Benefit is closed to most new working-age claimants, although it still applies to people of pension age and to certain groups such as those in supported or temporary accommodation. If you're not sure which applies to you, your local council or Citizens Advice can check.

Where to get further help

Universal Credit interacts with tax, redundancy pay, pensions and other benefits in ways that aren't always obvious. For tailored advice, speak to Citizens Advice, a local welfare rights service or an independent benefits adviser. For current figures on capital limits, payment rates and contribution conditions, GOV.UK is the authoritative source and is updated when the rules change.

The Next Step

Now that you have read through the advice above, you might want to put it into practice. Our Redundancy Action Plan lets you tell us about your situation and get a personalised step-by-step plan for dealing with redundancy. Covers finances, job hunting, benefits, and wellbeing. Try it now →