Tax rebate and universal credit

poppy12345

Paying off debt is not classed as deprivation of capital for UC. However, i'm not sure whether the surplus earnings rule will apply here, other's will know for sure.

calcotti

baconandegg said:

After a long and complicated discussion with the Tax Credits people (which we've migrated from to UC), it looks as though the rebate could be as much as £10k. If so, we could really do with paying a chunk off our credit card debt. Will UC consider this as a reasonable use of this money? I understand that in the assessment period where he claims the rebate it will nul what we would have received in universal credit payment. But, with proof of using the money to pay debt, will we be able to carry on claiming UC? 

Paying off debt is always allowed under UC legislation.
Bit confused by your reference to Tax Credits people though, I thought we were talking about an income tax refund. If you are talking about receiving a previous underpayment of Tax Credits that will, I think, be treated as unearned income in which case there is no taper applied..

calcotti

poppy12345 said:

Paying off debt is not classed as deprivation of capital for UC. However, i'm not sure whether the surplus earnings rule will apply here, other's will know for sure.

I think surplus earnings rules probably would apply because the refund is treated as earnings (if we are referring to an income tax refund).
OP, this means that the refund may affect more than one AP. It depends on what your maximum UC entitlement is, what your other income is and whether you have a Work Allowance.
see https://revenuebenefits.org.uk/universal-credit/guidance/entitlement-to-uc/self-employment/surplus-earnings-and-losses/ (ignore the fact this refers to self employed claimants, the rules are the same for employed earners).

Spoonie_Turtle

calcotti said:

baconandegg said:

After a long and complicated discussion with the Tax Credits people (which we've migrated from to UC), it looks as though the rebate could be as much as £10k. If so, we could really do with paying a chunk off our credit card debt. Will UC consider this as a reasonable use of this money? I understand that in the assessment period where he claims the rebate it will nul what we would have received in universal credit payment. But, with proof of using the money to pay debt, will we be able to carry on claiming UC? 

Paying off debt is always allowed under UC legislation.
Bit confused by your reference to Tax Credits people though, I thought we were talking about an income tax refund. If you are talking about receiving a previous underpayment of Tax Credits that will, I think, be treated as unearned income in which case there is no taper applied..

This link seems to say otherwise: https://www.litrg.org.uk/tax-guides/tax-credits-and-benefits/tax-credits/what-can-i-do-if-i-have-underpayment#toc-universal-credit-and-in-year-finalisation

If you start to claim UC and HMRC decide you have been underpaid tax credits when they in-year finalise your tax credits award, then any underpayment of tax credits which HMRC pay to you should be disregarded as capital for UC purposes for the first 12 months.

However even if that is the case, it does depend on what exactly the OP is talking about!

calcotti

Spoonie_Turtle said:

calcotti said:

baconandegg said:

After a long and complicated discussion with the Tax Credits people (which we've migrated from to UC), it looks as though the rebate could be as much as £10k. If so, we could really do with paying a chunk off our credit card debt. Will UC consider this as a reasonable use of this money? I understand that in the assessment period where he claims the rebate it will nul what we would have received in universal credit payment. But, with proof of using the money to pay debt, will we be able to carry on claiming UC? 

Paying off debt is always allowed under UC legislation.
Bit confused by your reference to Tax Credits people though, I thought we were talking about an income tax refund. If you are talking about receiving a previous underpayment of Tax Credits that will, I think, be treated as unearned income in which case there is no taper applied..

This link seems to say otherwise: https://www.litrg.org.uk/tax-guides/tax-credits-and-benefits/tax-credits/what-can-i-do-if-i-have-underpayment#toc-universal-credit-and-in-year-finalisation

If you start to claim UC and HMRC decide you have been underpaid tax credits when they in-year finalise your tax credits award, then any underpayment of tax credits which HMRC pay to you should be disregarded as capital for UC purposes for the first 12 months.

However even if that is the case, it does depend on what exactly the OP is talking about!

Being disregarded as capital is not incompatible with being treated as unearned income because all income that is not spent becomes capital after the AP in which the income is received. However, as I said, I wasn’t sure when I posted but was fairly confident that it would not be earned income.

You are correct that it would be ignored. Having looked through ADM Tax Credits are excluded from being taken as income.

H5074 Regulations allow for an overpayment of an existing benefit (excluding a tax credit or joint claim to JSA) to be recovered as unearned income for any period in which that overpaid existing benefit overlaps with a current assessment period in which UC also falls to be calculated. Any existing benefit paid in the current assessment period is treated as unearned income by virtue of these regulations. 

It also does indeed appear that any late Tax Credits payment would be ignored for 12 months.

Capital disregarded for up to 12 months
H2091 Any payment received within the previous 12 months by way of arrears of or compensation for late payment of certain benefits are disregarded. Those benefits are
....
2.6 CTC
2.7 WTC

OP needs to be clear whether they are talking about income tax refund or late Tax Credits.

Spoonie_Turtle

calcotti said:

Spoonie_Turtle said:

calcotti said:

baconandegg said:

After a long and complicated discussion with the Tax Credits people (which we've migrated from to UC), it looks as though the rebate could be as much as £10k. If so, we could really do with paying a chunk off our credit card debt. Will UC consider this as a reasonable use of this money? I understand that in the assessment period where he claims the rebate it will nul what we would have received in universal credit payment. But, with proof of using the money to pay debt, will we be able to carry on claiming UC? 

Paying off debt is always allowed under UC legislation.
Bit confused by your reference to Tax Credits people though, I thought we were talking about an income tax refund. If you are talking about receiving a previous underpayment of Tax Credits that will, I think, be treated as unearned income in which case there is no taper applied..

This link seems to say otherwise: https://www.litrg.org.uk/tax-guides/tax-credits-and-benefits/tax-credits/what-can-i-do-if-i-have-underpayment#toc-universal-credit-and-in-year-finalisation

If you start to claim UC and HMRC decide you have been underpaid tax credits when they in-year finalise your tax credits award, then any underpayment of tax credits which HMRC pay to you should be disregarded as capital for UC purposes for the first 12 months.

However even if that is the case, it does depend on what exactly the OP is talking about!

Being disregarded as capital is not incompatible with being treated as unearned income because all income that is not spent becomes capital after the AP in which the income is received. However, as I said, I wasn’t sure when I posted but was fairly confident that it would not be earned income.
Having looked through ADM Tax Credits are not listed as being taken as income so it does indeed appear that any late Tax Credits payment would be ignored for 12 months.
OP needs to be clear whether they are talking about income tax refund or late Tax Credits.

Ah, true, missed that step in my brain. 

Yep, they definitely need to know - both so they know what to expect and so that they can be sure UC deal with it properly when it's received.

NedS

baconandegg said:

After a long and complicated discussion with the Tax Credits people (which we've migrated from to UC), it looks as though the rebate could be as much as £10k.

Can I just clarify - is this all a tax rebate from over-payment of income tax, or a Tax Credits payment because you have been under-payed tax credits, or a combination of both, as they will be treated very differently.

baconandegg

It's definitely an income tax rebate. 

calcotti

baconandegg said:

It's definitely an income tax rebate. 

It was just your reference to the Tax Credits people that confused us!

baconandegg

Sorry! So just to clarify - if he took the £10k during an assessment period, we wouldn't get any UC payments that month and not be penalised for using some of the £10k  to pay down the credit card debt (after paying eg rent). If he states he has done this in his journal and provides evidence if required, will this be enough to ensure in the following assessment period our UC payments would return to what they were in the assessment period prior to the one involving the £10k payment?