Advice on UC deductions and ESA as table income

kingstarking

Hi I would appreciate if anyone could give me some advice on my current situation.

As a bit of background, I was made redundant in July last year (2020) and have been out of work since due to disability. I claimed ESA and UC when I became unemployed based on advice I was given when I spoke on the phone to UC.

Once my UC decision came through I saw that they were deducting my ESA payments from the total. This means my monthly income is exactly the same as if I had just claimed UC - essentially they just net off the ESA payments. This is annoying (and a personal gripe for me) but I wasn't too worried as I was still getting the same amount each month in the end The only difference was that now part of my income is ESA and part is UC. Its really important to note for the next part that I would be getting the same income each month if I had only claimed UC.

Today I claimed a tax refund with HMRC based on overpaying tax (in the tax year that has just ended) from my old job. I have been receiving contribution based ESA and have found that this is taxable. So tax from my ESA payments has been deducted from my rebate, reducing the figure by about £1k (which is a hell of a lot of money for me right now). If I had just claimed UC alone from the start I would have been receiving the exact same monthly amount + I wouldn't have lost £1k from my tax rebate, as UC isn't classed as taxable income.

This doesn't seem right/fair to me. Do I have any grounds with UC to claim back money they have deducted from ESA that just went towards HMRC? Is there anything I can do? Or do I just have to accept that by claiming ESA together with UC I have made myself a £1k poorer?

kingstarking

Sorry that should say 'taxable' not 'table' in the title! 

calcotti

Can I make sure I have understood the situation correctly.

You claimed both ESA and UC. You have now claimed a tax refund but because ESA is taxable income the refund you have received is less than you expected/hoped. Is there anything you can do?

Short answer is no. I agree it does seem unfair but it is the way the rules work.

Worth noting however that the amount you have ‘lost’ is less than first appears. You need to report the tax refund to UC and it will be treated as an earnings payment which means that 63% of the refund (after any remaining Work Allowance disregard) will be deducted from your next UC payment. Had the refund been bigger, the UC deduction would be correspondingly bigger. So had you received £1000 as a refund you would only have kept £370 of it.

kingstarking

Thanks for your answer, appreciate you taking the time to reply. Yes you have understood it correctly. I wish I had just claimed UC.

Right so I actually only keep 37% of the refund anyway so the amount I've 'lost' is less. I didn't even think of this being classed as an earning payment though but it seems you are right. (Though sadly this means the amount I actually receive will be even less than I first thought ☹️)

poppy12345

Whether it reduces your UC will depend on how much rebate you received. If it was less than your work allowance (if you have one) then there will be no deductions.

kingstarking

I see thanks. It looks like my allowance is £293. So I will be deducted 63% of anything I get that is over £293?

calcotti

kingstarking said:

I see thanks. It looks like my allowance is £293. So I will be deducted 63% of anything I get that is over £293?

Yes (assuming there are no other earnings to take into account which have already used up the Work Allowance).
You should report receipt of the tax refund on your UC journal.

kingstarking

Thanks. When it arrives I will report it. At least I should have a little extra money that month.