ESA to UC Migration - ESA letter about contributory element counting as taxable Income.

Noor711

For the attention of Newcad (or anyone else who might help me understand?):

I successfully migrated from Income-related ESA about 3 weeks ago.  My first statement is due in about 10 days. I got a letter from ESA to say my income-related ESA was ending and have been paid my run-on in full with no overpayment, as I submitted my claim the day after I was last paid ESA.  Yesterday I received a P45, and under the section about total taxable benefit in this period (from the beginning of 2025/26 tax year) to the date of the end of my claim, no figure is entered.  Under total tax in this period, no figure is entered.  And today I got a letter which reads:

'We are writing to tell you that the contributory element of ESA can count as taxable income. For the period up to 30 May 2025 in the 2025/26 tax year we paid a total allowance of £1918.74, of which £0.00 was taxable.... You will receive form P45."

I was expecting to get a P45 because one is always issued whenever a job or a benefit ends.  I have also always received a P60U after the end of the tax year because I understand that the DWP always issues one for ESA, regardless of whether the award is mixed contribution-based/income-related or solely income-related.  However, I have noticed on a number of forums that people, even experienced mods, are regularly advising that receiving a P60U means your ESA award is contribution-based.  Please confirm that this is not correct, as I believe to be the case.  But, this letter has now confused me because of the opening sentence  about 'the contributory element of ESA counting as taxable income'. 

No part of my legacy ESA claim was ever contribution-based.  My decision letters have always contained a paragraph stipulating: 'We have used the tax years ending X and Y to assess your claim' and 'We will credit you with NI contributions while claiming ESA' and 'You have not paid, or been credited with, enough NI contributions for them to be used in this assessment'.  There is no confusion about this on my part.  I applied for ESA in 2020 and the fact I had SDP in a legacy benefit meant that the SDP gateway (operating from Jan 2019 to Jan 2021) was activated, which meant that I was prevented from naturally migrating to UC when I had a change of circumstances and could apply for another legacy benefit.  I know I had insufficient NI contributions from self-employment in the previous two tax years.

What is worrying me, and so I am looking for insight or reassurance, is that the ESA team dealing with migrations might wrongly be migrating my ESA as a mixed award to UC, as a result of what is in this letter. 

I know many people migrating from ESA to UC currently were completely unaware that their award had a contributory element and thought it was wholly income-related, so are surprised to be told that it will be converted to New Style ESA which will continue to be paid 2 weeks in arrears but will be deducted £ for £ from their UC payment, and averaged as a monthly figure.  They also don't therefore get to keep all of their 2 week ESA run-on, only what was the income-related top-up.  I have not received a letter from ESA to tell me that 'my contribution-based ESA' will be converted to New Style ESA etc and I wouldn't be expecting to.  If an error in migrating my ESA details to UC is made, then £609.05 could wrongly be deducted from my UC on the understanding I get New Style ESA when I don't.  My ESA payments have now stopped.  I already don't expect the details about my LCWRA to be pulled across in time for my first payment as well as the TP, because I hear they are overwhelmed with the staggering volume of migrations they are administering.

Should I be concerned about this letter?  Is the wording boilerplate, typical of ESA letters, which are so generic that it has always been hard to decipher it's even talking about you and your situation?  Is this just standard wording for all letters sent out giving the amount of benefit paid in the relevant tax period when an ESA claim ends?

If it helps, my last P60U was issued on 26/4/25 and shows my Pay and Taxable benefit and Tax Deducted/Refunded for the Year End 2025 for the current claim as £12,527.86.  It shows Pay as £0.00, Taxable as £0.00, Pay & Taxable benefit as £0.00, Tax Deducted as £0.00, Tax Refunded as £0.00 and Net Tax Deducted as £0.00.  PAYE ref. ESA500. Final Tax Code 1257L. 

I am just wondering if I need to contact the ESA Helpline to be sure that my whole award has gone over to UC as Income-related only?

Any help to reassure me or advise would be greatly appreciated.  I'd prefer to avoid having to spend the hours now spent waiting for someone to pick up the phone on the ESA Helpline as they are apparently so short-staffed.

Dazed_and_C0nfused

If it helps, my last P60U was issued on 26/4/25 and shows my Pay and Taxable benefit and Tax Deducted/Refunded for the Year End 2025 for the current claim as £12,527.86. It shows Pay as £0.00, Taxable as £0.00, Pay & Taxable benefit as £0.00, Tax Deducted as £0.00, Tax Refunded as £0.00 and Net Tax Deducted as £0.00. PAYE ref. ESA500. Final Tax Code 1257L. 

Could you clarify that, you seem to be saying taxable amount was £12,527.86.  But then later the taxable amount was £0.00 🤔

Noor711

Hello @Dazed_and_C0nfused,

You're right.  The way I formatted my P60U content does confuse. 

The P60U is headed 'Certificate of Pay and Taxable Benefit and Tax Deducted/Refunded'.   

Then, under the heading 'benefit for current claim', it says Total: £12,527.86. 

It's Year to 5 April 2025. 

Under the various headings: Pay £0.00, Taxable £0.00, Pay and Taxable benefit £0.00, Tax deducted £0.00, Tax refunded £0.00 and Net Tax Deducted £0.00.

Glad of any help.

HillStreetBlues

Noor711 said:

   However, I have noticed on a number of forums that people, even experienced mods, are regularly advising that receiving a P60U means your ESA award is contribution-based. 

Receiving a P60U doesn't indicate what ESA is on during that tax year, it's the info in P60U that tells you. Income ESA is not taxable but Con/new style is. The box to look at is "Taxable"

huckster

All that has happened is ESA have converted an Income based ESA claim over to New Style ESA which is contributions based. So in regard to New Style ESA featuring as taxable benefit income this won't appear on any tax document until after end of current tax year 5th April 2026. 

ESA are not closing claims. They are just continuing existing claim on a different basis.

Newcad

Just to note that £12,750 is the current Personal Tax Limit - how much you can earn before income tax becomes payable. (I guess something got written, read, or quoted, wrong there).

'We are writing to tell you that the contributory element of ESA can count as taxable income. For the period up to 30 May 2025 in the 2025/26 tax year we paid a total allowance of £1918.74, of which £0.00 was taxable....

That all sounds quite normal.

Your ESA was IR only so none of the £1,918.74 it paid you was taxable, and that is what your P45U says.

The P45 itself is just ESA closing out the claim, they have to (are supposed to) issue a P45U as part of that closure.

If you were starting a job then you would need to give a P45U to your new employer who would have to put you on an emergency tax code if you didn't have one.

As you are not starting work but instead migrating to UC then you don't need it, just put it in a drawer for your own records. (It does tell you exactly how much ESA you were paid for that year before you migrated to UC, which is useful if you ever want to look it up).

Noor711

huckster said:

All that has happened is ESA have converted an Income based ESA claim over to New Style ESA which is contributions based. So in regard to New Style ESA featuring as taxable benefit income this won't appear on any tax document until after end of current tax year 5th April 2026. 

ESA are not closing claims. They are just continuing existing claim on a different basis.

Hello @huckster,  

Not sure why on managed migration to UC, they would be converting a wholly income based ESA claim which has never had any underlying contributory element over to New Style ESA.  What's the legal basis for doing so?  That would be an error. 

It has financial implications, as I mention with regard to the run-on then being deducted - those migrating with a mixed award have their contribution based element converted to New Style ESA which continues to be paid but will be deducted at an averaged monthly amount of £609.05 from the first assessment period's payment.  Those (like myself) with a wholly income-related legacy award of ESA have no deductions and get to keep all of the run-on.  Besides, I have had no letter telling me that my claim is converting to New Style ESA and I would have done by now, I assume.  

Noor711

HillStreetBlues said:

Noor711 said:

   However, I have noticed on a number of forums that people, even experienced mods, are regularly advising that receiving a P60U means your ESA award is contribution-based. 

Receiving a P60U doesn't indicate what ESA is on during that tax year, it's the info in P60U that tells you. Income ESA is not taxable but Con/new style is. The box to look at is "Taxable"

Hello @HillStreetBlues,

Thank you for confirming that getting a P60U doesn't indicate what type of ESA you are getting.  Not sure where the authority for that comes from, but it's something I just know.  The DWP issues it to all claimants after the end of the tax year whilst their claim is ongoing, as some kind of 'housekeeping' with HMRC.  

The info in my latest P60U which I posted above, says under 'Taxable' - £0.00.  So, that tells me it's Income-related ESA only?

Noor711

Newcad said:

Just to note that £12,750 is the current Personal Tax Limit - how much you can earn before income tax becomes payable. (I guess something got written, read, or quoted, wrong there).

'We are writing to tell you that the contributory element of ESA can count as taxable income. For the period up to 30 May 2025 in the 2025/26 tax year we paid a total allowance of £1918.74, of which £0.00 was taxable....

That all sounds quite normal.

Your ESA was IR only so none of the £1,918.74 it paid you was taxable, and that is what your P45U says.

The P45 itself is just ESA closing out the claim, they have to (are supposed to) issue a P45U as part of that closure.

If you were starting a job then you would need to give a P45U to your new employer who would have to put you on an emergency tax code if you didn't have one.

As you are not starting work but instead migrating to UC then you don't need it, just put it in a drawer for your own records. (It does tell you exactly how much ESA you were paid for that year before you migrated to UC, which is useful if you ever want to look it up).

Hello @Newcad, 

Thank you for responding and your insight.  So, the letter I got is really a part of my accompanying P45?  The P45 came separately in the post from the letter I quoted from, but from the sounds of it, they are connected documents as you imply.

So, I shouldn't be concerned then.  There's no implication that the form of words used in the letter which reads 'We are writing to tell you that the contributory element of ESA can count as taxable income...' means that I had a mixed ESA award, when I didn't.  It is just standard phrasing regardless of whether you had a mixed contribution-based/income-related ESA award or a solely income-related one.  Is that what you are confirming?

Thanks for the reassurance.

On reflection, I remember that when I submitted my UC claim a few weeks ago, and within an hour of my ID verification being confirmed, a message appeared on my UC journal headed 'other benefits that can affect your universal credit'.  On clicking the link, it said 'there is no record of you receiving ESA'.  At first I was alarmed as they listed the benefits that can affect how much universal credit you get, which included ESA.  In my mind, I thought 'hang on, I am migrating from ESA.  That's not right!'  Then I realised, they mean, they have no record in any system that I am getting  any benefit which can affect how much UC I get, which contribution-based ESA does because it's deducted £ for £ from your UC payment.  So, that would be correct.  I don't get contribution-based ESA.  The notice also advised contacting ESA to tell them you are getting it and update their records etc, if so which I didn't think I needed to, so forgot about it.  

Anyway, nothing in my P60U or my P45 and accompanying letter indicates any part of my benefit claim was contribution-based because it says £0.00 was taxable.  So, I will stop worrying about it and wait for my first statement.

Thank you for taking the trouble to respond.  Very grateful. 

Noor711

For @Newcad,

Correction - the message actually said 'no record of you getting any of these benefits' and in an extensive list ESA was amongst them.  Didn't actually say explicitly 'no record of you getting ESA', it's what I understood.

I have also seen on various forums that people submitting their UC claim and passing the ID verification do get the same link on their journal about 'other benefits affecting your universal credit' and their messages explicitly state  that there is a record of them getting ESA.  They then naturally interpret this as meaning, 'well of course I do, I'm migrating from ESA' when actually it is telling them that there is a record on the system of them getting contribution-based ESA... which will later on result in them getting a letter about converting to New Style ESA and having to accept further commitments etc.  It causes a lot of confusion...

Newcad

ESA has always been excellent at one thing - Sending out bloody confusing letters.

They draft letters to try and cover both IR and CB ESA and end up making a bodge of it, the annual uprating letter is a prime example and confuses thousands of people every year.
Perhaps once all IR ESA has migrated to UC and all ESA letters can be just about CB ESA they might start to get clearer? (Anybody want to buy a flying pig?).