Underpayment of tax due to overpayment of benefit

sgr1234

Can anybody give me some advice. My boyfriend claimed incapacity benefit for two years and stupidly returned to work during that time, but didn't notify DWP. So he has an overpayment of £6300 to repay back to DWP which he is currently repaying. However, HMRC have said that he has underpaid tax of £2300 for these two years. We have written several times to HMRC to say that due to the earnings they believe he received were actually an overpayment of benefit, he shouldn't have to pay tax on this as the overpayment is being repaid to DWP. Am I wrong or are HMRC just being stupid? Please can somebody give some meaningful advice. Many thanks.

somethingcorporate

What is their basis for the £2,300 figure?

For benefits that are paid directly I cannot see how they can confuse this with PAYE income.

Make an official complaint if you think you are in the right.

dori2o

somethingcorporate wrote: »

What is their basis for the £2,300 figure?

For benefits that are paid directly I cannot see how they can confuse this with PAYE income.

Make an official complaint if you think you are in the right.

Their basis is that IB is a taxable income after the first 26 weeks, and in certain circumstances is taxed in the same way as any other PAYE income using a modified PAYE system .

I've never come across this situation so cannot comment unfortunately.

The general rule for PAYE is that income is taxable in the year the income is paid, and so technically as the income is being recovered in laters years it may count as part of the income in earlier years?

Thats only my initial thoughts on it and without looking anything up or looking for cases where this has happened before.

What have you sent to HMRC, have you sent copies of anything from the DWP confirming that these payments were never due.

Don't assume that because both are Government departments that HMRC will have access to DWP information as that is not the case. Both are Independent.

sgr1234

One of the difficulties we are having is that we have had letters from Cardiff, Liverpool and now Newcastle!!! We have sent them the letter from DWP which states how much he is due to repay back to them so it is clear that although he "earned" this money in those years, it was in fact an overpayment and as it is being repaid he should nto have to pay tax on it. I've not been able to find any case studies where this has happened which was why I had hoped somebody may be able to help.

dori2o

sgr1234 wrote: »

One of the difficulties we are having is that we have had letters from Cardiff, Liverpool and now Newcastle!!! We have sent them the letter from DWP which states how much he is due to repay back to them so it is clear that although he "earned" this money in those years, it was in fact an overpayment and as it is being repaid he should nto have to pay tax on it. I've not been able to find any case studies where this has happened which was why I had hoped somebody may be able to help.

Does the letter from the DWP break down the overpayment in terms of how much was overpaid each year, or does it simply state the total value of the overpayment?

I had a brief look at the guidance at work today but couldn't find anything that related directly to this situation, and as you say, i don't think there are any case studies. I certainly have not found any.

I wonder if Pennywise may be able to offer some assistance. It may be worth sending a PM to him/her if they accept PM's.

You could also ask the question on an Accounting forum such as accountingweb.

I'll do a bit more digging and see what I can find for you.

jimmo

http://www.hmrc.gov.uk/manuals/eimanual/EIM76005.htm

dori2o

jimmo wrote: »

http://www.hmrc.gov.uk/manuals/eimanual/EIM76005.htm

Well found.

Don't know why but couldn't for the life of me find that earlier.

To the OP, thanks to Jimmo's help here's what I would advise you to do.(I'm assuming that these underpayments of tax refer to tax years 2008/09 or later? please confirm)

1st, Contact the DWP and ask them for a letter which confirms how much has been overpaid each year, and to also confirm the actual taxable benefit due in those years.

2, Once you have this letter write to HMRC again, explaining that the benefit has been overpaid and that you enclose a letter from the DWP confirming the amount of overpayment for each year, and the actual amount of benefit due for each year.

3, Also in this letter refer to the guidance Jimmo has posted, EIM76005 Social security benefits: benefits paid in arrears, overpaid and not paid weekly. This will allow the person dealing with your case to refer directly to the guidance.

HMRC should upon receipt of this information