Tax refund and universal credit

TommoIs64

I have been long term disability and claiming U/Credit since last year. I am in receipt of £161 work pension which £32 a month is deducted for tax.
When it was awarded the gross amount of ,£161 was used and not nett amount of £129 to calculate income. I have now received a tax refund of £386 and U/Credit say this is income.
My argument with them is as my pension is being used as calculated as gross the tax refund shouldn't be an income.
If nett was used then I agree , tax refund would affect an award.
Also refund isn't from work etc.

Icequeen1

They can only include the refund as income if it relates to a year in which you were in paid work, in that case it would be employed or self-employed earnings. I would ask for a mandatory reconsideration, i can't see any provision in the regulations that would allow it to be treated as income unless as I said it relates to a year in which you were in paid work. 

calcotti

As ice queen says. you were in work at any time in the year to which the tax refund relates then the regulations ay that it is to be titrated as earnings. Because it is treated as earnings, if you have LCW or LCWRW the Work Allowance will be applied to the refund (unless you have already used it).

In respect of the pension deductions I am unclear whether you were receiving £161 or receiving £129. If you were only receiving £129 then I think this is the figure that should have been used for calculating your UC entitlement and that is the bit that needs to be challenged.

TommoIs64

I have not worked since 2017 after dismissal from civil service on health grounds.
HMRC are aware as are uc

Icequeen1

You need to ask for a mandatory reconsideration. 

I also agree with calcotti, if your pension is paid to you after tax is deducted at source, then you could argue that the net amount should be treated as unearned income. There is no deduction for income tax specifically allowed for unearned income like there is from earned income, but if it is deducted at source i think it is arguable that the net figure is the right one to take into account. 
You might want to speak to a welfare rights adviser locally to look at this. 

calcotti

TommoIs64 said:

I have not worked since 2017 after dismissal from civil service on health grounds.
HMRC are aware as are uc

If the tax refund relates to a year in which you were not working then it should be treated as an increase in your capital which means it has no impact on your UC award unless it takes your capital over £6000.

The regulations say a repayment to the claimant of income tax or 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.

UC Regulations regulation 55(4A) and reg 57(1) refer.

If the refund does not fit this category there is no regulation under which it should be treated as income.

You should challenge the decision to take it into account as income/earnings (whichever they have done).

NedS

The Advice for Decision Makers (ADM) H5004 confirms that pension income is taken fully into account, and there are no comparable deductions for income tax.

It would seem reasonable that any pension income can not be taken into account twice. If the full gross amount has already been taken into account, any tax deducted and later rebated should be ignored on the basis it has already been taken into account as unearned income in consideration of the gross pension payment.

calcotti

Icequeen1 said: There is no deduction for income tax specifically allowed for unearned income like there is from earned income, but if it is deducted at source i think it is arguable that the net figure is the right one to take into account. 

Glad you confirmed that because I couldn't see anything explicit on the subject but it feels wrong to use a gross figure.

OP, will your future pension payments be received without tax deducted?

Icequeen1

NedS said:

The Advice for Decision Makers (ADM) H5004 confirms that pension income is taken fully into account, and there are no comparable deductions for income tax.

It would seem reasonable that any pension income can not be taken into account twice. If the full gross amount has already been taken into account, any tax deducted and later rebated should be ignored on the basis it has already been taken into account as unearned income in consideration of the gross pension payment.

It would be interesting to see if this could be challenged. Whilst there is no specific deduction for tax allowed from unearned income, could it be argued that where tax is deducted at source it is the amount received that should be treated as income under Reg 66. That would align with the principles of UC - which is supposed to look at the amount a person has in an assessment period (although admittedly that doesn't always work out). 

calcotti

NedS said: It would seem reasonable that any pension income can not be taken into account twice. If the full gross amount has already been taken into account, any tax deducted and later rebated should be ignored on the basis it has already been taken into account as unearned income in consideration of the gross pension payment.

The tax refund cannot be ignored if it relates to a tax year in which the claimant was in work (which appears not to be the case for OP). The regulations seem clear that any tax refund, regardless of the original source of income to which it relates, is to be taken into account as earnings if it relates to a year in which claimant was in work. If it doesn't fall to be taken into account as income for this reason then it should be treated as an addition to capital.

Treatment of tax refunds in UC is, in my view, largely unfair to claimants.

NedS said:T he Advice for Decision Makers (ADM) H5004 confirms that pension income is taken fully into account, and there are no comparable deductions for income tax.

On the other hand it doesn't explicitly state that the gross amount should be used - just refers to income.