Universal Credit is a state benefit for UK citizens above the age of 18 and below the state pension age. It aims to provide financial assistance to individuals who are either out of work or on a low income. It is a monthly payment that claimants receive to help them to cover living costs. Through this blog post, we will discuss whether or not a tax rebate will affect the Universal Credit payments of a claimant. In addition to this, we will also explore other financial circumstances that may potentially affect your Universal Credit claim.

Does A Tax Rebate Affect Universal Credit?

Yes, a tax rebate affects Universal Credit as it counts as income when a means test is carried out for benefits claims such as Universal Credit. However, the recipient is not required to pay income tax on a tax rebate.

The reason for this lies in the fact that  when a means test is carried out for benefits claim, the following types of income are taken into account for benefits claim and that too for income-based benefits:

  • Cash
  • Stocks and shares
  • Savings
  • Assets
  • Investments (rent, dividend, interest)
  • Unearned income (pension payments, student income)

Capital valued between £6001 and £16,000 will affect your Universal Credit claim (if you have capital beyond this amount you will no longer be eligible for Universal Credit).

Below is a list of income-based benefits that are affected by your income, savings, assets and investments:

  • Council Tax Support
  • Housing Benefit
  • Income Support
  • income-based Jobseeker’s Allowance
  • income-related Employment and Support Allowance
  • Pension Credit
  • Tax Credits (Child Tax Credit and Working Tax Credit)
  • Universal Credit

Will Universal Credit Know If I Get A Tax Rebate?

No, Universal Credit or the Department for Work and Pensions will not know on their own or even through the HMRC that an individual has received a tax rebate. It is the claimants’ responsibility to declare a tax rebate as it counts as additional income during the period that it was received and bears an impact on your Universal Credit payments during this time.

Since your entitlement for Universal Credit depends on your household income, an increase through tax rebate is likely to reduce your UC payments during the time of receipt. The challenge occurs when you’ve received a tax rebate as a result of an incorrect tax code and have been allowed a tax rebate in error. Even though the error may be corrected at a later stage by the HMRC and the excess amount recovered, it will remain a struggle.

If a claimant deliberately hides such information from the DWP, they may find themselves in a difficult situation in the future. If the DWP finds out that income-related information was deliberately hidden by a claimant, they can not not only ask you to refund the excess amount but also sanction your future payments due to benefits fraud.

Can I Get A Tax Rebate Through Wages?

Yes, if you have overpaid your tax paid through wages under the PAYE scheme, you can get a tax refund by contacting the HMRC. 

When you call HMRC about your tax refund due to overpayment, you must make sure that you have the following information available to you:

  • your personal details: including  your full name, address and date of birth
  • your National Insurance number
  • details of your employers or pension providers and their PAYE scheme reference number
  • Detailed estimates of your earnings and/or pensions from each source for the current tax year (with documentation)

Why Have I Overpaid My Taxes?

The reason(s) why salaried individuals may overpay their taxes through a PAYE scheme may be classified as follows:

  • They started a new job and were assigned an emergency tax code on a temporary basis
  • Their employer used an incorrect tax code
  • They held a job for a part of the year (and not the entire tax term)
  • They had more than one job at the same time
  • They are a student who only worked during holidays
  • Their “other incomes” have been reduced
  • They stopped working in the middle of the year and had no taxable income or benefits
  • Their circumstances changed; such as moving from full time to part-time work

In the case that a taxpayer has overpaid their tax due to any of the following reasons, 

  • being put on an emergency tax code due to starting a new job,
  • having two jobs simultaneously, or
  • switching from a full time to a part-time job

they can claim a tax refund and reclaim the amount from HMRC after the end of the tax year. Claims for overpaid taxes can be made up to four years. This means that an overpaid tax in 2022 can be claimed until 2026.

How Can I Claim A Tax Rebate?

To claim a tax refund, you will need to use the P60 form and share the following details with HMRC:

  • your earnings in total
  • the amount of income tax that you have paid
  • the amount of income tax that you have paid in excess

Additionally, you must also provide details of your National Insurance number and employer reference number.

In the case that a taxpayer has overpaid their tax due to any of the following reasons, 

  • being put on an emergency tax code due to starting a new job,
  • having two jobs simultaneously, or
  • switching from a full time to a part-time job

they can reclaim the amount from HMRC after the end of the tax year. Claims for overpaid taxes can be made for up to four years. This means that an overpaid tax in 2022 can be claimed until 2026.

Who Is Eligible For Universal Credit?

To qualify for Universal Credit, claimants must be able to fulfil the below eligibility criteria:

  • aged between 18 (in some cases it may be 16 or 17) and state pension age
  • unemployed or on low income
  • between the claimant and their partner, total savings are less than £6,000
  • experiencing high costs for childcare
  • suffering from a disability or health condition
  • caring for someone else

The amount of Universal Credit that an individual receives depends on their personal circumstances and income (if any). For instance, someone who is single and younger than 25 years of age will be eligible for Universal Credit amounting to around £257 per month. Meanwhile, this amount will rise to around £509 for someone who is living with a partner and either one of them or both of them are above the age of 25.

How Much Can I Claim With Universal Credit?

The basic rate for Universal Credit (without top-ups for housing and childcare) can be classified as follows:

  • If you are single and under 25, you can claim £257.33 a month
  • If you are single and 25 or over, you can claim £324.84 a month
  • If you are living with a partner and both of you are under 25, you can claim £403.93 a month
  • If you are living with a partner and one or both of you are over 25, you can claim  £509.91 a month

Does A Gift Of Money Affect Universal Credit?

No, a one time gift of money or small amounts of it at varying intervals will not affect your benefits including Universal Credit. Additionally, the amount of money that you may receive from friends, family or charitable sources is not included in the means test for benefits.

However, should you incur regular/periodic payments from friends, family or charity, these will be added under the “savings” section for your benefit claim. This is applicable if you receive large amounts of gift money and your total savings exceed £6,000.

Monetary gifts in the form of an annuity are considered an income and will bear an impact on your benefits claim. However, voluntary payments from a former partner or parent of a child are not considered a gift of money.

Does Owning A House Affect Universal Credit?

Yes, you can claim benefits such as Income Support and Job Seekers’ Allowance if you own a house; however, you will no longer be eligible for Housing Benefit. The reason for this lies in the fact that to qualify for Housing Benefit, claimants need to be able to fulfil the following criteria:

  • be at least 16 years old
  • have a low income or be claiming other benefits
  • have less than £16,000 in savings

If your house is mortgaged, you can still claim benefits and use the sum of payments received to pay your mortgage interest.

You can also continue claiming benefits if you own a home through the joint ownership scheme. In this case, you will also be able to claim Housing Benefit or Universal Credit Housing Cost element for your monthly rental or mortgage payments. 

Conclusion:

After reviewing the facts stated above, one may safely conclude that since a tax rebate increases your income, it will be considered a means test for benefits claim and hence affect your Universal Credit. Should your capital increase more than £16,000 as a result of this, you will no longer remain eligible for Universal Credit.

FAQs: Does A Tax Rebate Affect Universal Credit?

Do you have to report a tax rebate to Universal Credit?

Yes, it is the claimants’ responsibility to declare a tax rebate as it counts as additional income during the period. If the DWP finds out that income-related information was deliberately hidden by a claimant, they can not not only ask you to refund the excess amount but also sanction your future payments due to benefits fraud.

Is tax rebate income for Universal Credit?

Yes, a tax rebate counts as income when a means test is carried out for benefits claim such as Universal Credit. However, the recipient is not required to pay income tax on a tax rebate. The reason for this is that cash, stocks and shares, savings, assets, investments (rent, dividend, interest) and unearned income (pension payments, student income) are considered as income for a means test.

What happens if you inherit money while on benefits?

Money that you inherit while on benefits will be considered an asset and will reduce your benefits claim or make you ineligible for it 9depedning on the amount that you receive). If it is in the form of an annuity, it will be considered as income and will still bear an impact on your benefits claim.

Do gifts count as income for Universal Credit?

No, one-off gifts received from friends, family or through charity do not count as income for Universal Credit. When a gift of money increases your savings by more than £6,000, only then will it bear an impact on your benefits claim.

How will a lump sum affect my benefits?

A  lump sum amount will be considered as part of your savings and will reduce your benefits claim for means-tested benefits. These include Council Tax Support, Housing Benefit, Income Support, income-based Jobseeker’s Allowance, income-related Employment and Support Allowance, Pension Credit, Tax Credits (Child Tax Credit and Working Tax Credit) and Universal Credit.

How much money can you have in the bank and still claim benefits in the UK?

You can have up to £10,000 in the bank and still claim benefits in the UK. In the case of Pension Credit, this amount can be up to £16,000.

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The economics of universal credit | Tax Adviser

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Will my Universal Credit be affected if I get a tax rebate in April?.

How do I claim back tax I have overpaid through PAYE on wages or pensions? | Low Incomes Tax Reform Group

Claim a tax refund – GOV.UK

P60 tax refund examples – what do you need to know?

Council Tax Support if you get Universal Credit | Council Tax Support if you get Universal Credit

How do savings and lump-sum payouts affect benefits? | MoneyHelper

What will affect your Universal Credit payments | nidirect

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How do savings and lump-sum payouts affect benefits?

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