Universal Credits and Personal Pension Tax Rebate

everythingbut

I've been informed that I'm due a tax rebate on tax that I paid on a SIPP last year. Will this affect Universal Credits that I started claiming a couple of months ago? I have stopped drawing out of my SIPP.

huckster

Yes you would have to disclose receiving this and it will be counted as other income based on the date you receive it, therefore affecting your UC award in the assessment period you receive it. So tell UC the amount, date you received it and what it is i.e. One off tax rebate related to SIPP that you stopped drawing from.

calcotti

huckster said:

Yes you would have to disclose receiving this and it will be counted as other income based on the date you receive it, therefore affecting your UC award in the assessment period you receive it. So tell UC the amount, date you received it and what it is i.e. One off tax rebate related to SIPP that you stopped drawing from.

If the OP was in employment or self employment in that tax year will it not be treated as earnings?
https://assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/file/893721/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.

As far as I can tell if tax refund relates to a year in which claimant was not employed or self employed then the refund is ignored.

[EDIT: Inserted 'or self-employed' in opening and final paragraphs]

Icequeen1

calcotti said:

huckster said:

Yes you would have to disclose receiving this and it will be counted as other income based on the date you receive it, therefore affecting your UC award in the assessment period you receive it. So tell UC the amount, date you received it and what it is i.e. One off tax rebate related to SIPP that you stopped drawing from.

If the OP was in employment in that tax year will it not be treated as earnings?
https://assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/file/893721/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.

As far as I can tell if tax refund relates to a year in which claimant was not employed then the refund is ignored.

I agree with Calcotti - i can't see any other provision (other than under self-employment) for tax refunds to be taken into account. When you say 'other income' - do you mean unearned income subject to a 100% taper? I'd be interested in any guidance or legislation that covers this as I haven't come across it before. 

NedS

I agree with @huckster. Most of the legislation for tax rebates assumes the tax rebate comes from earned income. In this case it is from unearned income (a pension) so I would expect it to be treated as other income and subject to 100% taper accordingly. It is essentially deferred pension income that the claimant has only now received (as HMRC held on to a portion of it for a while due to the way pension withdraws are initially taxed) and I would expect it to be treated as such and deducted from UC in the month in which it is received. I'm not aware of any guidance supporting this though so happy to hear other points of view.

everythingbut

Thanks everyone. I'll keep you up to date. I've read and re-read the rules and can't find anything that covers this. I do feel that the whole tax rebate thing is grossly unfair. They wrongly took it off us last year so I would hope that it comes back to us in full.

calcotti

NedS said:

I agree with @huckster. Most of the legislation for tax rebates assumes the tax rebate comes from earned income. In this case it is from unearned income (a pension) so I would expect it to be treated as other income and subject to 100% taper accordingly. It is essentially deferred pension income that the claimant has only now received (as HMRC held on to a portion of it for a while due to the way pension withdraws are initially taxed) and I would expect it to be treated as such and deducted from UC in the month in which it is received. I'm not aware of any guidance supporting this though so happy to hear other points of view.

That is incorrect according to ADM. It states that it does not matter what the reason for the rebate is, if it relates to a year in which the claimant was in work the rebate is treated as earnings. See the note at the end of the paragraph which I have already quoted in my earlier reply.

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.

If it is treated as earnings the UC deduction is subject to the 63% taper (and benefits from the Work Allowance if applicable).

The question then arises as to what happens if the claimant was not in work in the year the rebate relates to. As far as I can see income tax rebates are not listed under unearned income and any source of income that is not listed is to be ignored. There is a basic principle under UC that anything that is not explicitly listed is ignored.

https://assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/file/899062/admh5.pdf

H5002 If a type of income is not listed above, it does not affect the claimant’s award.

For it to be taken into account it would need to be treated as pension income (which is listed) and I don’t think that is correct. 

[The treatment of tax rebates as income is one of the things I hate about UC. Legacy benefits always treated them as capital. Most claimants in this situation are getting a rebate from an earlier year in which they were not claiming UC and therefore end up being penalise day because of the way PAYE works.]

OP, in my opinion

If you were in work in the relevant year it is correct to take the rebate into account and a deduction will be made (unless it falls below any Work Allowance) but thededuction will not be the whole amount.

If you were not in work ask them under what provision of the regulations it is being taken into account. 

[As a further aside, I have no idea how a claimant is supposed to know whether to report, or what to report.]

calcotti

NedS said:

I agree with @huckster. Most of the legislation for tax rebates assumes the tax rebate comes from earned income. In this case it is from unearned income (a pension) so I would expect it to be treated as other income and subject to 100% taper accordingly. It is essentially deferred pension income that the claimant has only now received (as HMRC held on to a portion of it for a while due to the way pension withdraws are initially taxed) and I would expect it to be treated as such and deducted from UC in the month in which it is received. I'm not aware of any guidance supporting this though so happy to hear other points of view.

Further to my earlier argument it also occurs to me that an ad hoc pension withdrawal is in any case treated as capital, not income, 
This appears to create the perverse situation in which someone in work takes an ad hoc pension withdrawal which is treated as capital under UC but HMRC withhold a sum as tax. They then refund tax and the refund is then taken into account as earnings whereas if the tax had not been held it would all have been capital. That is manifestly unfair to the claimant and takes me back to why I hate the treatment of tax refunds under UC.

everythingbut

Thank you Calcotti, you've gone to a lot of trouble to answer my question and very eloquently too. I understand perfectly what you have said and only asked the question because I couldn't find anything that categorically said I would have to pay part or all of the rebate back. If I am penalised I will use your advice.
Many thanks.

huckster

Understand the arguments. Suggest this is reported to UC with full information and to ask for a Decision Maker to review this matter. Perhaps with more information, they can check all guidance and relevant legislation to inform a decision.

everythingbut

Will do Huckster.  Once the payment comes through I'll decide how to proceed.