So much worse off when tax credit ends and UC starts

Yamor

Two points here:

1) I wouldn't be so sure that it should be treated as unearned income for UC. It is very possible that such payments fall to be treated as earned income (as it sounds like they fall within the "employment income" definition), in which case there would be a strong argument that it can't also be treated as unearned income.

2) If I am wrong, and it is correct that it is unearned income, you should argue for transitional protection, even if DWP don't automatically give it to you, as has been discussed on many other threads.

Cutgrass

Cutgrass said:

NedS said:

Cutgrass said:

It's to do with a PHI as said above. Thanks for the suggestions about the other parts of the forum I will have a look. 

OK, so you have PHI income, that is non-taxable and therefore not taken into account for Tax Credits, but on UC must be declared and will be deducted pound for pound as other income, thus reducing any UC you receive after transitional protection.

Hi thanks almost correct but my PHI is taxable. So going to be £560 less a month. So good for them saying you won't be worse off. 

Thanks for the information. This is all very confusing. Could I please ask a couple of questions.

Would I be better off if its classed as unearned income rather than earned income? Also I claim ESA contributions based in the support group and my wife gets carers allowance. Would these 2 still get paid whichever group my PHI is classed in. Thanks everyone 

Spoonie_Turtle

Yamor said:

Two points here:

1) I wouldn't be so sure that it should be treated as unearned income for UC. It is very possible that such payments fall to be treated as earned income (as it sounds like they fall within the "employment income" definition), 

No it's definitely treated as unearned income.
ADM Chapter H5
H5086 Payments received under an insurance policy which is insuring against the risk of losing income due to
1  illness or
2 accident or
3 redundancy are taken fully into account¹.
¹ UC Regs, reg 66(1)(h)

***EDIT: my apologies, I could very well be wrong, this could just be applying to insurance policies you've taken out yourself, unrelated to your employer.***

The transitional protection is the nub of this and for so many others too.

Cutgrass said:

Cutgrass said:

NedS said:

Cutgrass said:

It's to do with a PHI as said above. Thanks for the suggestions about the other parts of the forum I will have a look. 

OK, so you have PHI income, that is non-taxable and therefore not taken into account for Tax Credits, but on UC must be declared and will be deducted pound for pound as other income, thus reducing any UC you receive after transitional protection.

Hi thanks almost correct but my PHI is taxable. So going to be £560 less a month. So good for them saying you won't be worse off. 

Thanks for the information. This is all very confusing. Could I please ask a couple of questions.

Would I be better off if its classed as unearned income rather than earned income? Also I claim ESA contributions based in the support group and my wife gets carers allowance. Would these 2 still get paid whichever group my PHI is classed in. Thanks everyone 

Earned income is deducted at a rate of 55% and has the work allowance (for people with children and/or LCW/RA), an amount disregarded before they start taking deductions. 
Unearned office is deducted in full.  So you'd be much better off if it were treated as earned income.

The PHI won't affect your wife's Carers Allowance, and I don't think it should affect your ESA but I'm not 100% sure on that.  How UC treats it is irrelevant for those benefits though.

Yamor

Spoonie_Turtle said:

Yamor said:

Two points here:

1) I wouldn't be so sure that it should be treated as unearned income for UC. It is very possible that such payments fall to be treated as earned income (as it sounds like they fall within the "employment income" definition), 

No it's definitely treated as unearned income.
ADM Chapter H5
H5086 Payments received under an insurance policy which is insuring against the risk of losing income due to
1  illness or
2 accident or
3 redundancy are taken fully into account¹.
¹ UC Regs, reg 66(1)(h)

The transitional protection is the nub of this and for so many others too.

I accept that it would seem to fall within Reg 66(1)(h), however, taxable PHI payments can sometimes also fall within the definition of earned income, if it is provided by the employer and is taxable as employment income. (The payments would then fall within the definition of "general earnings" of ITEPA s.7, as referenced by the UC Regs, Reg 55(2).)

As such, it would seem to fall within the definitions of both earned income and unearned income. Now, it would clearly be unfair for it to be counted twice!

In another case regarding income which would seemingly be double-counted as earned income and as unearned income (under Reg 66(1)(m)), I was told by an ex-UT judge that he would agree it couldn't count as both, and should not be included as unearned income, only as earned income. Whether that would be the case here as well, I can't be certain, but I'm inclined to think it would.

I'm not sure about it, which is why I expressed some doubt in my original post.

Cutgrass

This gets more complicated with every post lol. How can I find out for sure with income by PHI will fall in? As by what I've been reading on here not even UC seems to no and quite offen gets it wrong. We also get free school meals for the children and we get free prescription. So if im correct we would lose them if it went into the earned pot. Also sorry for all the questions would my ESA and wife's Carers go in unearned ot earned pot?

Spoonie_Turtle

Yamor said:

Spoonie_Turtle said:

Yamor said:

Two points here:

1) I wouldn't be so sure that it should be treated as unearned income for UC. It is very possible that such payments fall to be treated as earned income (as it sounds like they fall within the "employment income" definition), 

No it's definitely treated as unearned income.
ADM Chapter H5
H5086 Payments received under an insurance policy which is insuring against the risk of losing income due to
1  illness or
2 accident or
3 redundancy are taken fully into account¹.
¹ UC Regs, reg 66(1)(h)

The transitional protection is the nub of this and for so many others too.

I accept that it would seem to fall within Reg 66(1)(h), however, taxable PHI payments can sometimes also fall within the definition of earned income, if it is provided by the employer and is taxable as employment income. (The payments would then fall within the definition of "general earnings" of ITEPA s.7, as referenced by the UC Regs, Reg 55(2).)

Interesting, I don't know how to cite the regulations properly but the ITEPA section 7 you refer to, subsection 5 refers to this https://www.legislation.gov.uk/ukpga/2003/1/part/3/chapter/12  which throws a whole lot of ambiguity on it.  (Other accounts treated as earnings, and refers to payments for sickness.  No idea if it includes PHI or not!)

Have edited my previous post in light of that.

Cutgrass said:

This gets more complicated with every post lol. How can I find out for sure with income by PHI will fall in? …
 Also sorry for all the questions would my ESA and wife's Carers go in unearned ot earned pot?

This one is simple, ESA and CA are both treated as unearned income for UC and thus deducted in full.

I don't know how you find out how PHI through your employer is counted, for UC, sorry.  I don't know if any benefits lawyers would know for certain or if it's so far untested.

sheramber

This indicates it is deducted in full

https://www.entitledto.co.uk/help/non-work-income-overview-universal-credit

For Universal Credit non-work income means money that doesn't come from work or benefits. This includes the following types of non-work income:

• income protection insurance payments (for example, in respect of sickness or unemployment)

Non-work income is taken fully into account. This means that for every pound you get, your Universal Credit will be reduced by a pound.

Income protection insurance is what Permanent Health Insurance is.

NedS

Cutgrass said:

 I understand now that you would need more and  I'm sorry I didn't give this in the beginning. We are a couple with 2 children aged under 14. My income is from my employer but is a PHI (permanent health insurance).

I think much will depend on how it is reported.

If it's reported as taxable income through RTI by the employer, then UC will undoubtedly treat it as earned income.

If it's not, and the claimant declares it (which they must do), then it will likely be treated as unearned income (Other Income) as that is really the only way the UC system is able to handle it.

Because it is taxable (you confirmed that earlier) and is paid by your employer, I strongly suspect it will come through on the RTI feed and thus be automatically treated as employed income.

Can I ask - do you receive a pay slip each month from your employer, showing the payment and any tax deducted etc?

Cutgrass

NedS said:

Cutgrass said:

 I understand now that you would need more and  I'm sorry I didn't give this in the beginning. We are a couple with 2 children aged under 14. My income is from my employer but is a PHI (permanent health insurance).

I think much will depend on how it is reported.

If it's reported as taxable income through RTI by the employer, then UC will undoubtedly treat it as earned income.

If it's not, and the claimant declares it (which they must do), then it will likely be treated as unearned income (Other Income) as that is really the only way the UC system is able to handle it.

Because it is taxable (you confirmed that earlier) and is paid by your employer, I strongly suspect it will come through on the RTI feed and thus be automatically treated as employed income.

Can I ask - do you receive a pay slip each month from your employer, showing the payment and any tax deducted etc?

Hi yes it comes through payroll from my employer and yes I get a monthly payslip. We have alot of trouble with tax credit as the PHI payment comes thought as a taxable earnings. We have to keep telling tax credit that this is from a PHI and they manually go in and change it but about every 6 months their computer flags it up and they write to me to tell me they are using the new amount. I then have to phone them to get it put back as a PHI. They say they have no way of knowing as it just comes through as earned income though payroll. 

Yamor

Spoonie_Turtle said:

Interesting, I don't know how to cite the regulations properly but the ITEPA section 7 you refer to, subsection 5 refers to this https://www.legislation.gov.uk/ukpga/2003/1/part/3/chapter/12  which throws a whole lot of ambiguity on it.  (Other accounts treated as earnings, and refers to payments for sickness.  No idea if it includes PHI or not!)

Have edited my previous post in light of that.

S. 221 of ITEPA (which is what you are referring do) does indeed include PHI payments, but is only needed for cases where the insurance company pays out to the employee directly. Where the employer makes the payments, then it would already be taxable under s. 62.

Either way, it falls within the meaning of "general earnings", and therefore will be included as earned income for UC.

sheramber said:

This indicates it is deducted in full

https://www.entitledto.co.uk/help/non-work-income-overview-universal-credit

For Universal Credit non-work income means money that doesn't come from work or benefits. This includes the following types of non-work income:

• income protection insurance payments (for example, in respect of sickness or unemployment)

Non-work income is taken fully into account. This means that for every pound you get, your Universal Credit will be reduced by a pound.

Income protection insurance is what Permanent Health Insurance is.

As discussed above, this probably only covers PHI policies taken out by the employee themselves. Employer schemes (at least where the employer does not contribute towards the premiums) will normally count as earned income, and it would not be logical for them to also count as unearned income.

NedS said:

I think much will depend on how it is reported.

If it's reported as taxable income through RTI by the employer, then UC will undoubtedly treat it as earned income.

If it's not, and the claimant declares it (which they must do), then it will likely be treated as unearned income (Other Income) as that is really the only way the UC system is able to handle it.

Because it is taxable (you confirmed that earlier) and is paid by your employer, I strongly suspect it will come through on the RTI feed and thus be automatically treated as employed income.

Can I ask - do you receive a pay slip each month from your employer, showing the payment and any tax deducted etc?

Yes, I agree that it will automatically come through via the RTI feed.

Of course, just because the system automatically does something does not mean that it is legally correct, but in this case I think it is, as discussed above.

Hi yes it comes through payroll from my employer and yes I get a monthly payslip. We have alot of trouble with tax credit as the PHI payment comes thought as a taxable earnings. We have to keep telling tax credit that this is from a PHI and they manually go in and change it but about every 6 months their computer flags it up and they write to me to tell me they are using the new amount. I then have to phone them to get it put back as a PHI. They say they have no way of knowing as it just comes through as earned income though payroll. 

Do you mean to say that HMRC would then agree to remove the PHI income completely and calculate your tax credits without accounting for the PHI income in any way?

I think this would have been wrong, and you've been lucky to get away with that...