Class 1 NI refund whilst claiming UC

Afitzg

I’m hoping someone can help me as my query is a bit unusual...

From 2010-2015 I lived and worked abroad in Thailand and was not a U.K. resident.

From 2010-2013 I worked for a uk employer and had 25% of my salary paid in Thailand in local currency on which I paid tax and the Thai equivalent of national insurance and pension contributions.

The other 75% of my salary was paid in GBP which I paid no tax on but was wrongly charged class 1 contributions on.

I have now applied for a refund but am claiming universal credit.

I expect this refund to be fairly substantial: depending on how HMRC decide to apply rules on domicile at time limits it could be anything from a minimum of 3500 to as much as 14,000

Does anyone have any understanding as to what the implications are for universal credit (which I am currently claiming)?

When I read the legislation is refers to being employed, but not where or your residency. As I was not resident and paying the Thai equivalent of NI do I still need to declare this to UC?

Any advice much appreciated!

calcotti

In general any refund of Income Tax or NI is treated as earnings for the assessment period in which it was received if it relates to a tax year in which the claimant was employed. Like you, I can’t find any reference to whether the country of work makes a difference.

If it is treated as earnings that will obviously result in a nil UC entitlement in that assessment period. There are complex rules about surplus earnings which might result in an impact on the following assessment periods too but there is a monthly disregard of £2,500. https://revenuebenefits.org.uk/universal-credit/guidance/entitlement-to-uc/self-employment/surplus-earnings-and-losses/

If it is HMRC paying you the refund I expect UC will be informed anyway.

Afitzg

Thank you for your response: helpful to know that I’m not the only one unable to find out whether it relates to U.K. employment.

The legislation mandating that NI refunds count as income is from 2014 and period that the refund that I’m claiming for pre-dates this significantly. Does this make any difference?

calcotti

Afitzg wrote: »

The legislation mandating that NI refunds count as income is from 2014 and period that the refund that I’m claiming for pre-dates this significantly. Does this make any difference?

I don’t think so, the rules for UC will be the rules for UC.

calcotti

You probably know this. The relevant legislation is The Universal Credit Regulations 2013 as amended by The Universal Credit and Miscellaneous Amendments (No.2) Regulations 2014

See https://www.legislation.gov.uk/uksi/2013/376/regulation/55/made
https://www.legislation.gov.uk/uksi/2014/2888/contents/made

Universal Credit - calculation of earned income

4.—(1) The Universal Credit Regulations 2013 are amended as follows.

(2) In regulation 55 (employed earnings) after paragraph (4) insert—

“(4A) A repayment of income tax or national insurance contributions received by a person from HMRC in respect of a tax year in which the person was in paid work is to be treated as employed earnings unless it is taken into account as self-employed earnings under regulation 57(4).”.

There is no reference to location of work or place of residence so I think assumption must be that any refund will be taken into account.

This was a deliberate change by the government from the way such refunds were previously treated. Under previous benefits such refunds were ignored as earnings and only fell to be treated as capital. In most cases this meant that they did not affect claimants.

Afitzg

Ok: many thanks for your continued help and clarification. I have significant debts that this refund will basically swallow up. Do you have any idea on how this will effect things related to the surplus income threshold as this I’m finding this quite difficult to determine: the guidance seems very unclear. Does this one off refund only count for one period or am I basically now expected to self fund myself from my refund, potentially for 6 months if awarded the higher amount?

calcotti

Afitzg wrote: »

Ok: many thanks for your continued help and clarification. I have significant debts that this refund will basically swallow up. Do you have any idea on how this will effect things related to the surplus income threshold as this I’m finding this quite difficult to determine: the guidance seems very unclear. Does this one off refund only count for one period or am I basically now expected to self fund myself from my refund, potentially for 6 months if awarded the higher amount?

What you spend money on will make no difference.

The surplus earnings rules are very complicated. The link I provided earlier tries to explain them.

Crudely i think what this means is that they take the refund and treat it as earnings. From this they deduct the levels of earnings that would result in a nil UC entitlement for the assessment period. The balance is surplus earnings.

Next month this balance is taken forward but £2,500 is deducted. The balance is the new earnings figure to be used.

Repeat the process until the refund has been used up.

Even if the refund is £14,000, because of the £2,500 monthly disregard, it will be used up over 4 to 6 months, depending on your underlying UC entitlement, but this obviously means you will have to use some of it to live off over this period rather than for other purposes.

It is particularly harsh that you are penalised for recovering money if it should not have been taken off you in the first place but that's the Way the government have chosen to write the rules.

Note that during this period for each month that you have nil entitlement your UC claim may be closed. If so you will have to access your journal and make a rapid reclaim so it will be especially important to check your journal frequently.

Afitzg

Thanks again for your advice: so helpful! And so much appreciated!

I’m going to give citizen’s advice a call tomorrow to try and clarify the residency issue and what the definition of “employed” is and whether it’s defined as being employed in the U.K. (which I definitely wasn’t, I wasn’t even domiciled in the U.K. and for most of my life haven’t been!)

Will update once I get some feedback

calcotti

Afitzg wrote: »

I’m going to give citizen’s advice a call tomorrow to try and clarify the residency issue and what the definition of “employed” is and whether it’s defined as being employed in the U.K. (which I definitely wasn’t, I wasn’t even domiciled in the U.K. and for most of my life haven’t been!)

Will update once I get some feedback

You’re going to need a very knowledgeable adviser to get a definitive answer! Because UC is still fairly new we are all still learning it's peculiarities and there is very little case law to clarify things. As stated earlier my own opinion is that because the legislation has no geographic reference if the refund comes from HMRC it will be counted. Please do post back if you do glean any more information.

Afitzg

Will let you know how I get on! But given that my domicile from 2010-2015 was not in the UK and that I was paying Thai social contributions from 2010-2013 (and as a result qualify for a partial Thai state pension) It would be ridiculous to claim any U.K. connection during this period when money was wrongly deducted

Afitzg

I also couldn’t find any case law so suspect it will hinge on the definition of employment and whether this specified a locality of work