How does contributions-based ESA affect one's tax code?

Gaz83

My old man had to retire through ill-health a couple of years ago. He receives contributions-based ESA at £109.30 per week. He also has an insurance policy that pays him a monthly income (gross) of £2,100.

All in his yearly income is £30,884.64. His tax code for next year was supposedly going to be 1100L, giving him a taxable income of £19,884.64 and thus yearly tax of £3,976.92.

However the tax office have informed him that his personal allowance for the year is due to reduce to 533L, giving him a taxable income of £25,554.64 and thus yearly tax of £5,110.92 - a difference of £1,134 or £94.50 every calendar month.

Is this normal? I've never heard of a social security benefit reducing a person's tax code. It seems that they've reduced his personal allowance by the amount of ESA he receives.

Many thanks for any help.

Gaz83

I should add - online I've been able to find that the tax code can be reduced if it's a secondary source of income, providing the primary source is a pension or retirement annuity. However it's not a pension or retirement annuity my old man receives - it's an insurance policy that his previous employer took out to cover any employees who had to retire with ill-health (he worked in construction all his days).

Darksparkle

Contributions based ESA is taxable and cannot be taxed at source so yes it will reduce his tax code on other taxable income in order to pay the correct tax overall.

dave030445

Hi same as me how did the tax man know you were receiving ESA

Londonsu

dave030445 wrote: »

Hi same as me how did the tax man know you were receiving ESA

ALL income whether its benefits, salary, savings or pensions are subject to tax I personally would not be happy if the tax man didn't know who was getting benefit income.


I have had my tax code changed due to JSA I received tax year 2013/2014, I had the money paid to me and I have to pay tax on it I have an underpayment of 83 quid for that year so they have to get it back.


Now of course I would be more happy if the tax man pursued the large corporations for tax as well, but IMO that is a separate matter.

TELLIT01

dave030445 wrote: »

Hi same as me how did the tax man know you were receiving ESA

They would be informed by DWP.

dave030445

TELLIT01 wrote: »

They would be informed by DWP.

They are saying they haven't

Gaz83

Many thanks to all for your replies.

p00hsticks

dave030445 wrote: »

They are saying they haven't

For taxable benefits such as contributions based ESA and JSA, DWP produce P60s at the end of each tax year and P45s when someone ends their claim, in exactly the same way that an employer or pension advisor does. These details all get sent to HMRC as wel las the claimant.,

Darksparkle

p00hsticks wrote: »

For taxable benefits such as contributions based ESA and JSA, DWP produce P60s at the end of each tax year and P45s when someone ends their claim, in exactly the same way that an employer or pension advisor does. These details all get sent to HMRC as wel las the claimant.,

Dave already has his own thread on this subject. DWP appear to have informed HMRC but they don't appear to have acted on 2013/14 and 2014/15 until now.