Disregard allowable employment expenses in Universal Credit earnings

changelog.d/1997.fixed.md

@@ -0,0 +1,3 @@
+Disregard already-allowable employment expenses in Universal Credit employed earnings before the minimum income floor.
+
+Nonzero employment expenses supplied by a dataset can change Universal Credit microsimulation results. The aggregate effect has not been quantified.

docs/book/programs/gov/dwp/universal-credit.ipynb

@@ -38,7 +38,19 @@
     "* Limited Capability for Work and Work-Related Activity amount\n",
     "* Carer amount\n",
     "\n",
-    "The table below shows some of the rates covered by PolicyEngine-UK. "
+    "The table below shows some of the rates covered by PolicyEngine-UK. \n",
+    "\n",
+    "## Allowable employment expenses\n",
+    "\n",
+    "The `employment_expenses` input is the annual amount already allowed under [Chapter 2 of Part 5 of ITEPA](https://www.legislation.gov.uk/ukpga/2003/1/part/5/chapter/2). Universal Credit disregards this amount from each person's employed earnings before the minimum income floor, under [GB regulation 55(3)(a)](https://www.legislation.gov.uk/uksi/2013/376/regulation/55) and the corresponding [Northern Ireland regulation 55(3)(a)](https://www.legislation.gov.uk/nisr/2016/216/regulation/55). The existing income-tax expense deduction also uses this input.\n",
+    "\n",
+    "Supply the legally allowed amount after applicable limits for the relevant employment and other deductions; do not supply all raw work costs. Expenses paid on an employee's behalf and reimbursements must meet sections 333 and 334, including the required inclusion in gross earnings. The same costs must not be deducted twice. The person-level annual input does not determine admissibility, job-by-job limits, or special-case exceptions. No aggregate salary cap or new earnings floor is inferred from it.\n",
+    "\n",
+    "For example, in the existing 2024 annual model, a single claimant aged 30 with £6,000 employment income and £600 of allowable expenses has £5,400 UC earnings before the minimum income floor. With no tax, NI, pension deductions, work allowance or other award adjustments, the 55% taper increases final UC by £330 relative to the same worker with no expenses. This illustrates the UC award; it does not certify household net-income treatment of the cost itself.\n",
+    "\n",
+    "Nonzero employment expenses supplied by a dataset can change Universal Credit microsimulation results. The aggregate effect has not been quantified.\n",
+    "\n",
+    "This partial correction leaves payroll giving and other unresolved parts of [issue 1997](https://github.com/PolicyEngine/policyengine-uk/issues/1997) open. It retains the existing annual allocation, pension/trade calculation, minimum income floor, claimant selection and direct-input overrides. It does not establish assessment-period expense/payment timing, special-category admissibility, historical commencement or complete GB/NI history.\n"
    ]
   },
   {

policyengine_uk/tests/policy/baseline/finance/benefit/family/universal_credit/income/uc_employment_expenses.yaml

@@ -0,0 +1,61 @@
+# The expense input is an already-allowable ITEPA Part 5 Chapter 2 amount.
+# No raw-cost or per-employment admissibility is inferred by these cases.
+- name: Qualified employment expenses reduce earnings and increase final UC cash
+  period: 2024
+  absolute_error_margin: 0.01
+  input:
+    people:
+      claimant:
+        age: 30
+        employment_income: 6_000
+        employment_expenses: 600
+    benunits:
+      family:
+        members: [claimant]
+        would_claim_uc: true
+    households:
+      household:
+        members: [claimant]
+        tenure_type: OWNED_OUTRIGHT
+        region: LONDON
+  output:
+    taxable_employment_income: 5_400
+    income_tax: 0
+    national_insurance: 0
+    pension_contributions: 0
+    uc_work_allowance: 0
+    uc_individual_earned_income_before_mif: 5_400
+    uc_earned_income: 5_400
+    uc_income_reduction: 2_970
+    # Standard allowance 393.45 monthly; no child/housing elements,
+    # benefit cap reduction or debt deductions.
+    universal_credit_pre_benefit_cap: 1_751.40
+    universal_credit: 1_751.40
+
+- name: The same worker without expenses retains the original final UC cash
+  period: 2024
+  absolute_error_margin: 0.01
+  input:
+    people:
+      claimant:
+        age: 30
+        employment_income: 6_000
+    benunits:
+      family:
+        members: [claimant]
+        would_claim_uc: true
+    households:
+      household:
+        members: [claimant]
+        tenure_type: OWNED_OUTRIGHT
+        region: LONDON
+  output:
+    taxable_employment_income: 6_000
+    income_tax: 0
+    national_insurance: 0
+    uc_work_allowance: 0
+    uc_individual_earned_income_before_mif: 6_000
+    uc_earned_income: 6_000
+    uc_income_reduction: 3_300
+    universal_credit_pre_benefit_cap: 1_421.40
+    universal_credit: 1_421.40