Income Tax & PAYE

Universal Credit

A means-tested benefit for people on a low income or out of work, replacing several legacy benefits.

Definition

Universal Credit is a monthly payment from the government to help with living costs. It replaces six legacy benefits (including Housing Benefit, Jobseeker's Allowance, and Working Tax Credit). The amount you receive depends on your circumstances — your income, savings, housing costs, and number of children. Universal Credit is means-tested, and your payment is reduced by 55p for every £1 of net earnings above a work allowance.

Why it matters

It is the main welfare benefit for working-age people and affects millions of UK households.
The taper rate and work allowances mean increasing your hours can sometimes result in a lower overall income gain than expected.

Common use cases

Applying for Universal Credit
Checking how a pay rise affects your UC entitlement
Reporting changes in circumstances

Last reviewed: 2026 · Tax year: 2026/27Found a mistake? Let us know

Related terms

Child Benefit State Pension

Disclaimer

This definition is for informational purposes only and does not constitute tax, legal, or financial advice. Rules may change and outcomes depend on your circumstances.

Public resources and UK tax glossary sources

These GOV.UK and HMRC sources provide the official context for this glossary entry. The definition is educational and does not determine your individual tax position.

GOV.UK — Universal Credit

Loading tools