Backdated Widows Allowance

calcotti

Yes. Hopefully someone could do a calculation for you. Alternatively you try a calculator such  as https://www.entitledto.co.uk/.

Because WPA is taxable the Tax Credit entitlement will reduce (but only if means the difference between years is more than £2500). 

You need to also take into account that you will have to pay tax on the WPA (if you have used up your nil free allowance).

In all the above I don’t know if the backdated payment will be treated as received in the year it is paid or will be retrospectively allocated to earlier years. If the latter I suspect that you would have to work out the TC entitlement for each year that is affected and compare it with the figures previously used.

Dazed_and_C0nfused

calcotti said:

Yes. Hopefully someone could do a calculation for you. Alternatively you try a calculator such  as https://www.entitledto.co.uk/.

Because WPA is taxable the Tax Credit entitlement will reduce (but only if means the difference between years is more than £2500). 

You need to also take into account that you will have to pay tax on the WPA (if you have used up your nil free allowance).

In all the above I don’t know if the backdated payment will be treated as received in the year it is paid or will be retrospectively allocated to earlier years. If the latter I suspect that you would have to work out the TC entitlement for each year that is affected and compare it with the figures previously used.

I'm pretty sure it will taxable in the tax year it relates to, not the tax year any arrears are paid.

calcotti

Thanks, helpful Dazed. However aren’t arrears of State Pension which are now being paid to errors now being allocated to the tax years in which the money originally have been paid and this potentially similar.

Have now found this

https://www.gov.uk/hmrc-internal-manuals/employment-income-manual/eim76005

“Arrears of benefit may be paid in a lump sum. The arrears are chargeable for the year or years of assessment to which they relate.”

For DWP benefits the arrears payment will be a lump sum and a 12 month disregard has been put in place. As usual I can’t find in information for Tax Credits - changes in regulations always seem to taker longer to tell us how tax Tax Credits affected.

However the arrears is treated, any ongoing WPA payments may affect the Tax Credits depending on how much the total income changes from year to year.

This is a helpful read for DWP benefits
https://www.legislation.gov.uk/uksi/2023/134/pdfs/uksiem_20230134_en.pdf

michelefauk

Thank you for all the detailed info, I note the following from the gov website

This Order therefore provides for all retrospective WPA payments up to the date of claim, to be treated as capital and disregarded for a period of 12 months or 52 weeks in UC, ESA, JSA, IS, PC and HB. This Order also introduces a disregard for the same period for retrospective BSP payments made under the order. The usual rules will apply to future BSP and WPA entitlements.

But no mention of what happens if you are receiving Tax Credits! 

calcotti

The difference is that for DWP benefits the arrears would normally be capital (not income) but the disregard applies. For Tax Credits capital isn’t considered anyway but they are based on taxable income which therefore depends on the income tax treatment. I am not how it will be treated for income tax - but see the bit I quoted in my previous reply which appears to me that a taxable benefit payment should be retrospectively applied to the tax years in which the entitlement accrued. That would then require a recalculation of all tax and Tax Credits for each of the affected years.

michelefauk

Sorry, forgive my ignorance, so if receiving the arrears of WPA for each year took me over the threshold to receive tax credits, would they then take any overpaid tax credits back out of the WPA arreas lump sum? Meaning I could end up with nothing?

calcotti

michelefauk said:

Sorry, forgive my ignorance, so if receiving the arrears of WPA for each year took me over the threshold to receive tax credits, would they then take any overpaid tax credits back out of the WPA arreas lump sum? Meaning I could end up with nothing?

Not ignorant at all. I don’t know how they reconcile it. I suspect that deducting any Tax Credit overpayment is too complicated to deduct from the WPA payment. When the TC has been reviewed there might be an overpayment to repay. However I’m guessing.

michelefauk

Thank you. I'm going to send off the forms and see what happens, even if its a small amount it will go to help my daughter's uni bills so fingers crossed. Since my partner died, its been very tough financially so every little helps as they say! 

michelefauk

I found this on another site (Childhood Bereavement Network) 

• It will affect any tax credits you are receiving. It will be treated as income, and assessed in the year it is paid rather than the year of entitlement.

Not sure what this means, 

calcotti

michelefauk said:

I found this on another site (Childhood Bereavement Network) 

• It will affect any tax credits you are receiving. It will be treated as income, and assessed in the year it is paid rather than the year of entitlement.

Not sure what this means, 

Very odd that it says it will be treated for tax purposes as if paid when entitled whereas for Tax Credits as treated as taxable income when received.