universal credit and over paid tax

majeedk

 I lost my work at the end of April 2020 and I only received salary for April 2020 and in May 2020 a redundancy package (equivalent to 3 months salary).  After being unemployed and living off of my savings and taking private loans from friends, I applied for Universal Credit in August 2021 and started receiving benefits from 8 September 2021. UC people put a cap on benefits because I was unemployed during 12 months period prior to applying for UC.

Today I have received a letter from HMRC informing me of refund for over paid tax for year 2020/21. The letter states that I over paid Tax and that they owe me £7557.94 which I can request within 21 days or wait for 6 weeks to get a check.

Can fellow members please advise me on the following?

1. Shall I request this refund from HMRC via web address in the letter or wait for this cheque?
2. Do I need to inform UC people? I am asking this because the refund relates to tax I overpaid prior to 12-month assessment period. Plus I want to direct transfer this money to friend who loaned me during last year.
   
3. Is redundancy pay treated same as salary w.r.t tax?
   

Dazed_and_C0nfused

Are you happy that the refund calculation is accurate and includes all your taxable income and any relevant deductions?

1.  Claiming it online seems simpler than waiting for and having to bank a cheque.  But there may be (significant) UC implications so timing might be important.
2.  Normally yes

3.  Depends on part of the redundancy payment you are referring to.  Some can be non taxable.

majeedk

Dazed_and_C0nfused said:

Are you happy that the refund calculation is accurate and includes all your taxable income and any relevant deductions?

In the latter from HMRC I can see that Medical Insurance is added to income however, my private pension isn't listed. I am not sure if that will/should have any impact

1.  Claiming it online seems simpler than waiting for and having to bank a cheque.  But there may be (significant) UC implications so timing might be important.

This money needs to go to a family friend who I owe around 10k. So I was planning to give then the cheque or pass their bank details to HMRC. What implication are we talking about here in that situation?

Do I need to inform UC only if money comes into my bank account? i.e I am in possession of such money?

Dazed_and_C0nfused said:

3.  Depends on part of the redundancy payment you are referring to.  Some can be non taxable.

How do i check this? All I was told by HR guy from my workplace is that I am being paid 3 months salary as a contract termination package.

calcotti

For Universal Credit any refund of Income tax relating to a tax year in which you were employed or self employed will be treated as earnings received in the UC assessment period in which you receive the refund. This will result in Nil UC payment that month and given the size of our repayment may affect the following months also (due to complex 'surplus earnings rules'). For a sum of £7500 the maximum number of UC periods that will be affected is three (following the one in which you receive the payment).

You must inform UC. (They will find out in due course anyway.)

Dazed_and_C0nfused

however, my private pension isn't listed. I am not sure if that will/should have any impact

Do you mean you received taxable income from a pension and HMRC haven't included that in the calculation?

If so yes that could well mean the calculation is wrong

majeedk

Dazed_and_C0nfused said:

however, my private pension isn't listed. I am not sure if that will/should have any impact

Do you mean you received taxable income from a pension and HMRC haven't included that in the calculation?

If so yes that could well mean the calculation is wrong

Sorry No. I meant to say that I paid into private pension as did my workplace. I am not sure if it was before or after tax deductions. This bit isn't listed on the letter I received from HMRC

Dazed_and_C0nfused

Does the calculation show you were taxed at any of the higher rates?

majeedk

Dazed_and_C0nfused said:

Does the calculation show you were taxed at any of the higher rates?

Yes. I paid at Higher rate (40%) when I was only supposed to pay Basic rate (20%) tax

Dazed_and_C0nfused

Not clear if we are saying the same thing.

What happened during the year is irrelevant now, does the tax calculation (P800?) you have received show that you were in fact liable to tax at 40% when calculating the refund?

majeedk

Dazed_and_C0nfused said:

Not clear if we are saying the same thing.

What happened during the year is irrelevant now, does the tax calculation (P800?) you have received show that you were in fact liable to tax at 40% when calculating the refund?

I was only liable to pay basic rate tax at 20%. Below are the numbers from the letter

Total Income : £34,755.92

Total taxable income : £22,255.92
Income Tax Paid : £12,008.94
Income Tax payable £4,451

HMRC owes me: £7,557.94

I hope this helps

calcotti

This thread has primarily dealt with the tax side of things. Please do note by earlier post about the way the refund will be treated by UC.