Hmrc income tax refund and UC

Mejustme

Hi there, does anyone know whether an income tax refund from overpaid paye is set off against Universal Credit payments ( ie treated as income ?)

Many thanks

calcotti

Mejustme wrote: »

Hi there, does anyone know whether an income tax refund from overpaid paye is set off against Universal Credit payments ( ie treated as income ?)

Many thanks

It is treated as earned income subject to the 63% taper rate as with all earned income (may also fall to be disregarded if there is a Work Allowance which hasn't been used up). Even a tax refund which is not the result of PAYE (such a a refund of tax paid on savings) is treated as earned income if you were in work at the time the tax was originally paid.

This is a (mean spirited) change from legacy benefits where tax refunds were treated as capital. It effectively means that the UC payment is subject to a tax deduction even though UC is not taxable.

See https://assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/file/754949/admh3.pdf

"H3022 An actual repayment to the claimant of
1. income tax or
2. NI contributions
by HMRC in respect of a tax year in which a person was in paid work is treated as employed earnings. Where the paid work was from carrying on a trade, profession or vocation then the repayment is treated as S/E earnings (see ADM H4131).

Note 1: Repayments of income tax may include tax relating to other sources such as unearned income. As long as the claimant was in paid work in the tax year the repayment relates to, then the whole repayment is treated as earnings.
Note 2: There is no requirement for the claimant to report changes that take place in relation to their tax code or variations in their tax reported via RTI.

Example
Ellie receives a cheque from HMRC for £200. This relates to an overpayment of £600 income tax made in the tax year 11/12 (in which Ellie was in paid work) and an underpayment of £400 in income tax relating to the tax year 12/13. The amount that Ellie should declare as employed earnings is £200 as this is the repayment she received, not £600 which relates to the refund due in one of those years."

Mejustme

The tax relates to 2017/8 tax year - so April 2017 to April 2018.

The refund advise letter sent to me offers me the options :-

1) Logon to HMRC to get payment in 5 working days, or
2) Wait to receive a cheque ( 2 months )

My UC is as a self employed person, and ends in December 18 as they only pay it for 12 months while starting a business.

Looks like I’m best waiting 2 months as it won’t effect my UC payment then ?

Agree ??

calcotti

Mejustme wrote: »

The tax relates to 2017/8 tax year - so April 2017 to April 2018.

The refund advise letter sent to me offers me the options :-

1) Logon to HMRC to get payment in 5 working days, or
2) Wait to receive a cheque ( 2 months )

My UC is as a self employed person, and ends in December 18 as they only pay it for 12 months while starting a business.

Looks like I’m best waiting 2 months as it won’t effect my UC payment then ?

Agree ??

UC doesn't automatically end after 12 months of self employment but they do then calculate your entitlement on the assumption that you are earning 35 x minimum wage/week which could well result in a nil award. I infer that this is what you expect to happen.

If so then I completely agree, it's better to wait in the hope that the cheque doesn't come in before your UC stops. (You may also be in more need of the money then.)

I don't know what date the DWP will use for a cheque payment, I would assume there is some mechanism to prevent you simply delaying cashing a cheque after receiving it. Nor do I know if HMRC will notify DWP that a cheque has been issued.

Mejustme

That’s the thing. I really think that it’s unfair to treat a paye refund as income in the first place, the unknown quantity is the link between HMRC and UC / Jobseekers ...

They might even advise UC at the same time as issuing me with a refund letter and deduct even before I’ve been paid it for all I know !!

calcotti

Mejustme wrote: »

That’s the thing. I really think that it’s unfair to treat a paye refund as income in the first place,. .

I agree. As per my earlier post the effective result is a tax deduction from UC which is supposed to be non taxable. Unfortunately you and I don't make the rules!

Mejustme

The rules on earnings ought to be exlude random ‘income’ from such things as having paid too much tax in a 12 month period and having a refund of said tax.

They should be separate. But they aren’t! Mad !!