HMRC Tax Rebate on Universal Credit

mineral68

I still don't follow. Let's say you take a job that pays above the income threshold for UC and it lasts for three months and you decide to end your claim for UC after the first month in work. You are then saying that if you make a fresh claim after the three months then your first month of UC will be reduced to zero because your previous 3 months earnings will be taken into account?

calcotti

mineral68 wrote: »

I still don't follow. Let's say you take a job that pays above the income threshold for UC and it lasts for three months and you decide to end your claim for UC after the first month in work. You are then saying that if you make a fresh claim after the three months then your first month of UC will be reduced to zero because your previous 3 months earnings will be taken into account?

No i’m Not saying that. I am saying that if you reclaim again my interpretation is that, because the payment date is unchanged the first payment will take into account any income received in the relevant assessment period, which would be the one starting from the assessment start date prior to the date of reclaim. Therefore in the scenario you describe the final payment would be taken into account if it falls within the assessment period, but not all three. Depending on the timing none might be taken into account.

Let’s say the assessment period runs from 5th of the month to 5th of the month, earnings are paid on the 28th of the month and the employment ends on the 15th of the month but final wages not received until the 28th. If you claim on the 16th of the month (immediately after employment ends) the assessment period will run from the preceding 5th to the following 5th so your final wages received on the 28th will be taken into account. If you delay claiming until the 7th of the following month the final wages will not be taken into account because they fall before the assessment period (but obviously you’ve missed the possibility of a UC payment on the 5th if the wage payment was not high enough to cancel out UC entitlement).

I can’t find clear guidance on this, it’s just my interpretation of the consequences of the assessment period dates being maintained.

If you are on UC and then have income which results in a monthly entitlement of NIL your claim stops but is not closed. You will receive no further payments unless you make a reclaim but the rapid reclaim process applies for 6 months.

Icequeen99

mineral68 wrote: »

I still don't follow. Let's say you take a job that pays above the income threshold for UC and it lasts for three months and you decide to end your claim for UC after the first month in work. You are then saying that if you make a fresh claim after the three months then your first month of UC will be reduced to zero because your previous 3 months earnings will be taken into account?

Actually yes, this is correct (although not all of the earnings are taken into account, only those above your 'UC threshold') under something introduced last year called the 'surplus earnings rules'. At present the disregard is £2500 so not many people will be caught by them, but it will eventually reduce to £300 from April 2020.

Basically if you go into a well paid job, your UC will end due to earnings too high. If you then lose than job within 6 months and return to UC, they will look at your 'surplus' earnings in the 6 months you are off UC and treat that surplus as income when you come back to UC.

IQ

calcotti

I thought I wouldn’t complicate it by introducing the surplus earnings rules as very few people will be caught by them at the moment but you are of course right that they could impact this situation in the future.

mineral68

Don't the surplus earnings rules just apply to the self-employed?

Does anybody have a link to the UC Regs that state that an income tax refund is classed as earnings?

If the DWP, through UC, are effectively denying temporary workers their full personal allowance then they are breaking the law, as everyone on low or medium earnings is legally entitled to the full personal allowance.

Icequeen99

mineral68 wrote: »

Don't the surplus earnings rules just apply to the self-employed?

Does anybody have a link to the UC Regs that state that an income tax refund is classed as earnings?

If the DWP, through UC, are effectively denying temporary workers their full personal allowance then they are breaking the law, as everyone on low or medium earnings is legally entitled to the full personal allowance.

It is Regulation 55(4A) of the UC Regulations 2013 (https://www.legislation.gov.uk/uksi/2013/376/pdfs/uksi_20130376_310518_en.pdf)

And no, surplus earnings apply to employed people as well.

I don't understand your point about the personal allowance, that has nothing to do with DWP, you'll still get your personal allowance. DWP decide what is income and what isn't for UC purposes.

IQ

calcotti

See paragraph 54A of the regulations referenced by icequeen99 for details of surplus earnings rules. As noted by icequuen earlier they really don't impact at the moment because of the monthly £2,500 disregard. They are more likely to impact when the disregard is reduced to £300. Currently this is scheduled for 2020 but this is the result of a recent postponement from 2018 and I suspect there may be further postponement to reflect the extended transfer of claimants from old benefits to UC.

There's also information and a full explanation here https://revenuebenefits.org.uk/universal-credit/guidance/entitlement-to-uc/self-employment/surplus-earnings-and-losses/
Interestingly this explains the thinking behind the rules thus:

Background to the surplus earnings and loss rules

The general rule for calculating earned income (employed and self-employed) in respect of an assessment period is that it is to be based on the actual amounts received in that period.

However, DWP were concerned that this would allow both employed and self-employed UC claimants the ability to change their earnings patterns to increase their UC awards. For example, an employee could agree with their employer to be paid all of their salary in month 1, followed by no payments for the next 11 months (and so a maximum award of UC paid in those 11 months) and then repeat that in the following year.

As a result, the surplus earnings and loss rules were introduced.

mineral68

Thanks for this Calcotti and Icequeen99.

I think I follow the surplus earnings stuff. The Personal Allowance, however, does have something to do with the DWP if they are effectively taking part of it away from low paid temporary workers via UC. If someone is earning the minimum wage and then paying emergency tax on that and then when they receive that overpaid tax back from HMRC the DWP then take it away from UC this is morally and possibly legally wrong. If someone on the minimum wage wasn't paying emergency tax then they would keep most of their earnings, but someone on the minimum wage who is paying emergency tax then loses some of those pittance of earnings if they find themselves in-between jobs and having to claim UC. This has to be challenged.

mineral68

Another point about an income tax refund is that it will be paid in one assessment period but actually earned/accrued/accumulated over possibly many assessment periods/months. In other words, the income tax refund does not actually fully relate to the assessment period it is paid/earned in. For example, an employee is paying emergency tax for six months on a minimum wage job and then the job finishes and then they start re-claiming UC. Two weeks later HMRC issue a cheque for £800.00 for an income tax refund. This refund actually RELATES to the full previous six months and not just the assessment period, although it is paid in the assessment period. The DWP would then reduce UC to almost nothing because of these earnings in that 'one' accumulated assessment period. Is this what the Tories mean by 'making the poor pay for working', sorry 'making work pay'?

calcotti

The problem with tax refunds also hits anyone liable to income tax who goes sick. Person in work has tax deducted through PAYE. They become sick. They receive Statutory Sick Pay from theiremployer but can claim UC to top up their income and to get help with rent. Because their earnings have dropped the PAYE system means that along with the SSP they are likely to het a monthly income tax refund. This reduces their UC entitlement. Although UC is a non taxable benefit the result is that it is effectively being taxed.