S5/2025: Changes to the Housing Benefit subsidy calculation for prior year overpayments
Updated 9 October 2025
Applies to England, Scotland and Wales
© Crown copyright 2025
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Housing Benefit Circular
Department for Work and Pensions.
Caxton House, Tothill Street, London SW1H 9NA.
Subsidy Circular
Who should read
All Housing Benefit colleagues and wider if appropriate.
Action
For information.
Subject
Changes to the Housing Benefit subsidy calculation for prior year overpayments.
Guidance Manual
The information in this circular does not affect the content of the HB Guidance Manual.
Queries
If you have any queries about the technical content of this circular, contact contact lawelfare.lafunding@dwp.gov.uk.
If you have any queries about the distribution of this circular, contact lawelfare.correspondence@dwp.gov.uk.
Crown Copyright 2025.
Recipients may freely reproduce this circular.
Introduction
1. This circular advises of changes being made to the way Housing Benefit (HB) subsidy is calculated for prior year overpayments.
2. The Income-related Benefits (Subsidy to Authorities) Order 1998 will be amended to reflect the changes by way of an Amending Order which will come into force by 30 November 2025 at the latest and will be applicable from 1 April 2024.
3. Any local authorities (LAs) affected by these changes may wish to re-calculate and re-submit their subsidy claims for the financial year ending (FYE) March 2025.
4. Due to complexities, there is no current intention to make changes to the LA IT software or the subsidy claim form, therefore a manual calculation will be required.
5. As such, LAs will only be required to implement the changes to their FYE March 2025 and future subsidy claims should they deem it appropriate to do so.
Background
6. As part of some LAs review of their specified and temporary accommodation caseloads, concerns have been raised about how subsidy is calculated for prior-year overpayments, specifically where in the prior year, less subsidy was received than the value of the overpayment.
7. For prior year overpayments, the current regulations (Article 19 (1)(e) – (g) of The Income-related Benefits (Subsidy to Authorities) Order 1998) stipulate the full value of the prior year overpayment should be deducted from the current year’s subsidy claim, rather than the amount of subsidy received.
8. This means the deduction for the overpayment could be higher than the subsidy originally received where an LA did not receive full subsidy on the initial expenditure, for example supported exempt accommodation and temporary accommodation claims.
9. As the Working Age caseload is moving towards only specified claims, the proportion of claims where the subsidy on expenditure is limited under Articles 16 – 17C is increasing, in other words, supported exempt accommodation and temporary accommodation claims.
10. These changes are being introduced to prevent a financial risk to LAs who identify prior year overpayments in their supported exempt accommodation and temporary accommodation caseloads. The changes provide a legislative basis to limit the amount of subsidy deducted from an LA for a prior year overpayment, to the amount of subsidy the LA initially received on the expenditure. See example 1.
Example 1: How the current prior year subsidy calculation works
The table demonstrates how the current prior-year overpayment subsidy calculations work. In this example, a prior year overpayment of £560 is identified and classified as an eligible overpayment (40% subsidy rate):
| Claim type | O/P value | Subsidy received in prior year | O/P value deducted from subsidy | Subsidy paid (as per subsidy rate for o/p type) | Net subsidy | % Net subsidy paid |
|---|---|---|---|---|---|---|
| General needs | £560 | £560 | -£560 | £224 | £224 | 40% |
| Supported exempt accommodation | £560 | £250 | -£560 | £224 | -£86 | -15% |
Impact of changes
11. It is not expected that many LAs will be impacted by this change.
12. Where an LA is impacted and opt to recalculate their claim, they will need to manually adjust the value of expenditure reported in cells 029–033, 068–072 and 118-122 for authorities in England and Wales and cells 029–033 and 118-122 for authorities in Scotland.
13. LAs who do opt to recalculate their claim, can decide whether they apply the manual calculation to all their prior year overpayment cells, or just to prior year overpayments cells where it will make a material difference. Likewise, an LA may opt to only recalculate the values for some of the overpayments within the same cell.
14. As the subsidy claim forms calculate subsidy based on cell value, for some overpayment types the LA will need to adjust the value of overpayment they enter into a cell to ensure the subsidy is calculated correctly. A calculator is provided at Appendix A (attached separately to this circular) to assist LAs in determining the correct adjusted value.
15. We are aware this will mean the overall value of overpayments will be understated and, therefore, impact on the level of subsidy an LA receives for overpayments categorised as LA error and administration delay, where the LA is below the lower threshold. However, the overall impact on subsidy received should be neutral. See Example 2.
Example 2: Impacts for LA Error and Administration delay overpayments
£560 was paid in a rent allowance case administered under the pre-1996 rules.
£250 was recorded in cell 098 (expenditure on that part of the weekly eligible rent at or below the rent officer’s determination on a claim) of the previous year’s subsidy claim.
£310 was recorded in cell 097 (expenditure on that part of weekly eligible rent above the rent officer’s determination on a claim where restrictions could be made under Regulation 13 or 13ZA).
The total subsidy carried through to cell 004 in the prior year was £250.
Under the current process
In the current year it is discovered that the full £560 was an LA error and administration delay overpayment.
£560 is recorded in cell 120 (LA error and administrative delay overpayments from a prior year) of the current year’s claim.
The calculation at cell 127S deducts the £560 (cell 120) meaning the total carried through to cell 004 is £-560.
Therefore, overall, there is a reduction to the LA’s subsidy of £310. If the level of LA error is below the threshold, £560 would be awarded subsidy and, therefore, the overall subsidy received would be £250.
Under the new adjusted value process
In the current year it is discovered that the full £560 was an LA error and administration delay overpayment.
The LA uses the calculator provided at Appendix A and determines the adjusted value to be recorded in cell 120 of the current year’s claim is £250.
The calculation at cell 127S deducts £250 (cell 120) meaning the total carried through to cell 004 is £-250.
Therefore, the overall subsidy received is £0, which reflects that LA error and administration delay. If the level of LA error is below the threshold, £250 would be awarded subsidy and the overall subsidy received would be £250.
| Process | O/P value | Subsidy received in prior year | O/P value deducted from subsidy | Net subsidy | Subsidy paid (where LA below lower threshold (0.48%)) | Net subsidy paid |
|---|---|---|---|---|---|---|
| Current process | £560 | £250 | -£560 | -£310 | £560 | £250 |
| New process | £560 | £250 | -£250 | £0 | £250 | £250 |
Record keeping for audit purposes
16. LAs will need to retain evidence to support the calculation of expenditure entered into the subsidy claim form, particularly where this is different to values reported from subsidy modules in the LA HB software systems.
17. LAs must be able to demonstrate the reduction in expenditure recorded on the subsidy claim linking to HB cases where reduced rates of subsidy were initially paid and provide a breakdown of expenditure according to rates of subsidy paid in prior years.
Actions required by LAs
18. Any impacted LAs who opt to revisit their subsidy claim and perform the calculation laid down in this circular should recalculate their FYE March 2025 subsidy claim. Please refer to Annex A.
19. Where an LA is affected by these changes in FYE March 2025, and have already submitted their initial final subsidy claim, please inform the Department for Work and Pensions by email to lawelfare.lapaymentsandsubsidy@dwp.gov.uk
20. Where possible, an LA should recalculate and resubmit their FYE March 2025 claim prior to the final audit. If the audit process has already started, contact the Department for Work and Pensions on the email address above for advice on how best to proceed.
How to claim the correct value of subsidy for prior year overpayments where subsidy in the prior year was limited
Impacted LAs should carry out the following actions:
1. Check system records to determine the level of subsidy received on the related overpayment expenditure in the prior year.
2. Where the overpayment is only part of an award, you will need to calculate how much subsidy was apportioned to the overpayment element.
3. Ensure there have been no other changes which impact the level of subsidy you should receive.
4. If you are amending a FYE March 2025 subsidy claim and the prior-year overpayment expenditure has already been accounted for within, you should remove it from the appropriate cell.
5. Use the calculator provided at Appendix A to determine the adjusted value for the subsidy claim.
6. Input the adjusted value into the appropriate prior-year overpayment cell, that is, cells 029-033 (non HRA rent rebate in England and Wales, all rent rebates in Scotland), 068-072 (HRA rent rebate in England and Wales), or 118-121 (rent allowance). Prior year overpayments should not be recorded in the total expenditure cells in the current year’s claim.
7. For DWP error not recovered overpayments only, the prior year overpayment cells do not form part of the calculations within the claim forms, in other words, cell 030, 069 or 119. This means an LA will need to record the adjusted overpayment value in the current year overpayment cells to have an impact, in other words, cell 025, 064 or 112 and the appropriate header cell will also need to be adjusted.
The adjusted value will ensure the subsidy received is correct for the overpayment type.
Example 1: Full HB award overpayment: Prior year subsidy calculation where there was a restriction on the subsidy received in the prior year
Mr Smith lived in supported exempt accommodation and was awarded £560 HB for the period 15 to 21 February 2024. It was paid as a rent allowance case administered under the pre-1996 rules.
£250 was recorded in cell 098 (expenditure on that part of the weekly eligible rent at or below the rent officer’s determination on a claim) of the previous year’s subsidy claim.
£310 was recorded in cell 097 (expenditure on that part of weekly eligible rent above the rent officer’s determination on a claim where restrictions could be made under Regs.13 or 13ZA).
The total subsidy carried through to cell 004 in the prior year was £250.
In the current year it is discovered that the full £560 was an eligible overpayment.
As eligible overpayments attract 40% subsidy, the current subsidy claim form will not be able to correctly calculate the subsidy due so the LA will need to enter an adjusted value into cell 121.
The calculator provided at Appendix A can be used to calculate what the adjusted value should be. When the LA enters this adjusted value in cell 121 (eligible overpayments from a prior year) of the current year’s claim, the claim form will make the appropriate deductions and additions to ensure the subsidy received by the LA over the prior and current year, equate to the correct value, in other words, 40% of the overpayment.
Entering an adjusted value in cell 121 ensures the calculation at cell 127S correctly adjusts the subsidy taking into account the subsidy received in the previous year. In other words, as this is an eligible overpayment, the LA is due is 40% of the overpayment value, £224. The LA received £250 in the prior year so has been overpaid by £26.
By entering an adjusted value of £43 in cell 121, the form deducts the £43 but awards back 40% of this (£17) in cell 121S, meaning a net deduction of £26.
| O/P value | Subsidy received in prior year | Adjusted O/P value deducted from subsidy | Subsidy paid (as per subsidy rate for o/p type) | Net subsidy | % Net subsidy paid | Net subsidy paid |
|---|---|---|---|---|---|---|
| £560 | £250 | -£43 | £17 | £224 | 40% | £250 |
Example 2: Part HB award overpayment where the initial award received varied rates of subsidy
Mr Smith lived in supported exempt accommodation and was awarded £560 HB for the period 15 to 21 February 2024. It was paid as a rent allowance case administered under the pre-1996 rules.
£250 was recorded in cell 098 (expenditure on that part of the weekly eligible rent at or below the rent officer’s determination on a claim) of the previous year’s subsidy claim.
£310 was recorded in cell 096 (expenditure on that part of weekly eligible rent above the rent officer’s determination on a claim where restrictions could not be made under Regs.13 or 13ZA), (60% subsidy).
The total subsidy carried through to cell 004 in the prior year was £436.
In the current year it is discovered that £300 of the £560 was an eligible overpayment.
The LA will need to determine how much subsidy the LA should have correctly received on the HB expenditure less the overpayment, for example, £260.
The LA should refer to paragraphs 760 and 770 of the Housing Benefit subsidy guidance manual 2024 to 2025 for help with calculating subsidy for pre-1996 cases.
In this example the claim related rent set by the Rent Officer is £250. The eligible rent figure used to calculate HB is £260, and the HB award should have been £260. Therefore, the amount of subsidy the LA would have received for the £260 award had the overpayment not occurred is £256. This should be deducted from the total subsidy received to identify how much subsidy was received on the overpayment element, in other words, £436 minus £256, meaning the subsidy received on the overpayment was £180.
In this example, the adjusted value is £100. As this is an eligible overpayment, the LA is due is 40% of the overpayment value, £120. The LA received £180 in the prior year so has been overpaid by £60.
By entering an adjusted value of £100 in cell 121, the form deducts the £100 and awards back 40% of this (£40) in cell 121S, meaning a net deduction of £60.
| O/P value | Subsidy received in prior year | Adjusted O/P value deducted from subsidy | Subsidy paid (as per subsidy rate for O/P type) | Net subsidy | % Net subsidy paid |
|---|---|---|---|---|---|
| £300 | £180 | -£100 | £40 | £120 | 40% |