How the 55% taper works in practice
The Universal Credit taper rate of 55% applies to net earnings, that is, earnings after income tax and National Insurance. For every pound of net earnings above any applicable work allowance, UC is reduced by 55p. The remaining 45p represents the gain from earning.
This creates a predictable but steep marginal deduction for UC claimants. A worker earning £1,500/month with a work allowance of £427 has £1,096 of earnings above the threshold. At 55%, that generates a UC deduction of £602.80, leaving the UC award reduced by that amount compared to no earnings.
Who gets a work allowance, and who does not
The work allowance of £710 or £427 per month is only available to households that include children or a Limited Capability for Work-Related Activity (LCWRA) element. Single adults without children, and childless couples, have no work allowance, the 55% taper starts from the first pound of earnings.
This distinction matters enormously. A single parent earning £400/month may face almost no UC reduction at all. A childless single person earning the same amount loses £220/month from their UC award. Household composition is one of the biggest drivers of the real-terms impact of working.
Net versus gross earnings in the taper calculation
Universal Credit uses net earnings, after income tax and employee National Insurance, not gross salary. DWP receives earnings information via HMRC's RTI system and applies the taper to the net figure automatically. This means a pay rise that also pushes you into a higher tax bracket generates a smaller UC reduction than the gross figure would suggest.
Self-employed claimants use their actual profit (income minus allowable expenses) as the earnings figure, subject to the Minimum Income Floor where applicable. The MIF effectively applies an assumed earnings level for claimants who have been self-employed for more than a year.