There are many ways that parents can take time off work; this could be for maternity leave, shared parental leave or unpaid parental leave. If you are taking leave and your pay is reduced, you should check whether there are any benefits you may be eligible for. This article provides a guide to what benefits you might be able to claim if your earnings are reduced by taking leave.
If your household income is reduced by taking parental leave you may qualify for increased awards of – or start qualifying for – the following benefits:
- Universal Credit
- Tax Credits (usually only if already claiming)
- Income Support (usually only if already claiming)
- Housing Benefit (usually only if already claiming)
- Council tax reduction
Universal Credit has replaced Tax Credits, Income Support, Housing Benefit, income-related Employment and Support Allowance and income-based Jobseeker’s Allowance. Depending on your circumstances you will probably be unable to make a new claim for these benefits and have to claim Universal Credit instead.
It is important to remember that all of the benefits mentioned above will take into account your partner’s income. This means that your household income may be too high to qualify even if one of you is not earning anything.
You can check your potential entitlement to all these benefits using a calculator here.
You may be eligible to claim Universal Credit
Universal credit is paid monthly in arrears, therefore a reduction in your income should result in an increased award in the current month. If your earned income is above the ‘work allowance’ (the lower limit where earnings affect the award) but below the maximum earnings, then for every £1 that your earned income goes down your universal credit award will increase by 63p.
If you voluntarily lose pay when you are on universal credit, this can result in a ‘sanction’. A sanction means that you would not receive the personal allowance part of your universal credit award (or half of it if you claim as a couple). Other elements, like the housing element and child element, are not affected. You wouldn’t normally be sanctioned on maternity, paternity, adoption leave etc and we think it is very unlikely that you would be sanctioned for taking unpaid parental leave.
You should not be sanctioned if you can show that you had good reason for taking unpaid parental leave, e.g. no affordable childcare available during the school holidays, or a sick child needing your presence at home or at their bedside in hospital. You will find more information on Universal Credit here.
It is possible for your UC to be reduced due to the benefit cap if you don’t have enough earnings. If this happens to you because you are on maternity leave, parental leave, adoption leave, parental bereavement leave, paternity leave or shared parental leave, get advice.
You may be eligible to claim Council Tax Reduction
This benefit is administered by your local authority and is calculated on a weekly basis. You may qualify for an increased award during any week where your earnings are lower than usual. You will find more information on this here.
If you are already receiving Tax Credits
Your tax credit award for the current year is usually based on your income from the previous tax year, unless you have given HMRC an estimate of income for the current tax year (6th April to following 5 April inclusive). Even then, your tax credits won’t change unless this tax year’s expected income is more than £2,500 higher or lower when compared to last tax year. If your income in the current tax year falls due to time on family leave then you may be entitled to more tax credits, but you should be careful with any estimate of income you give to HMRC to avoid being overpaid. If you later realise the estimate was wrong (eg because you go back to work sooner than you expected), make sure you give them a new estimate). Alternatively, you can leave your tax credits based on the previous tax year’s income and you will get some money back if you are owed anything during the tax credits finalisation process.
You are treated as working for Working Tax Credit during most (but not all) periods of maternity leave, shared parental leave or parental leave.
If you are already receiving Income Support
If you are on parental leave from work you are entitled to Income Support if all of the following apply to you:
- You are responsible for a child who lives with you
- You were entitled to working tax credit, CTC payable at a higher rate than the family element or housing benefit on the day before your parental leave began.
- Your partner is not working
- You are not entitled to receive any payments from your employer
- You and your partner do not have capital worth over £16,000
If you do not meet the conditions above you can also qualify for Income Support if you are a single parent on a low income with a child under five and you do not have capital worth £16,000 or over. Otherwise, you can’t generally make a new claim for Income Support unless you are entitled to a severe disability premium in another benefit (or you were within the past month).
If you or your partner receive SMP, paternity pay, shared parental pay, parental bereavement pay, statutory adoption pay, maternity allowance or any wages these will be deducted from your income support award.
If you are already on Housing Benefit
This benefit is administered by your local authority and is calculated on a weekly basis. You may qualify for an increased award during any week where your earnings are lower than usual. You can’t make new claims for Housing Benefit unless specific circumstances apply.
If you have further questions and would like to contact our advice team please use our advice contact form below or call us.