How does tax interact with universal credit?

Based on the retrieved sources, here is a structured answer covering the key interactions between tax and Universal Credit (UC):

How Tax Interacts with Universal Credit

HMRC guidance / practice

The interaction between tax (particularly tax credits) and Universal Credit is governed by several key principles:

1. Universal Credit Replaces Tax Credits

Universal Credit is a new benefit that is replacing a range of existing benefits, including tax credits. New customers must claim Universal Credit rather than tax credits, as the gateway to new tax credits claims has effectively been closed.

2. You Cannot Receive Tax Credits and Universal Credit at the Same Time

A person is not entitled to a tax credit in respect of any period when they are entitled to Universal Credit. Similarly, a Universal Credit claimant may not make a claim for a tax credit.

A person is treated as a "UC claimant" (and therefore barred from tax credits) if they:

• Are entitled to UC;
• Have made a claim for UC and are awaiting a decision;
• Were previously in a joint UC award and it is within one month of leaving that couple;
• Have ceased to be a member of a couple and are entitled to UC as a single claimant or in a new couple;
• Are treated as having made a UC claim but no decision has yet been made; or
• Have been refused UC and are seeking revision or appeal.

3. Tax Credits End When UC Begins

Where a tax credit claimant forms a couple with a UC recipient, entitlement to tax credits ends on the day before the couple are jointly entitled to UC.

Where a person who has a UC award has a tax credits appeal determined in their favour, any entitlement found by that appeal terminates on the day before the first date of UC entitlement.

4. Help-to-Save Bonus: Tax Treatment and UC Impact

The Help-to-Save government bonus is tax-free and does not count as savings income for income tax purposes.

For UC purposes:

• The bonus does not count as income for means-testing.
• However, the bonus and any accumulated savings do count as capital for UC means-testing.
• Savings above £6,000 are taken into account and will taper the UC award.
• Anyone with capital over £16,000 is not eligible for UC.
• For tax credit claimants migrated to UC, capital in excess of £16,000 is disregarded for 12 months from the point of migration.

5. Off-Payroll Workers (IR35): Deemed Earnings Count for UC

When calculating earned income for UC purposes, deemed earnings for off-payroll working purposes must be included.

6. Transitional / Overlap Situations

There is a narrow exception allowing a new claimant partner joining a UC award to be treated as present from the beginning of the UC assessment period, even if they were still in a tax credits award for part of that period — this prevents the other member of the former tax credits couple from losing entitlement.

Where a person had an ongoing tax credits award and makes a new UC claim, they are treated as making a tax credits claim from 6 April to the day before they made their UC claim.

Note: The sources available focus primarily on the interaction between tax credits and Universal Credit, and the treatment of specific items (like Help-to-Save bonuses and off-payroll earnings) within UC. For broader questions about how income tax (e.g. PAYE, self-assessment) interacts with UC award calculations, you may wish to consult the DWP's UC guidance or the relevant UC regulations directly.