Universal Credit payments are dependent on the earnings of claimants (among other factors). Through this blog post, we aim to learn whether Universal Credit or the DWP will learn about the tax rebates that claimants receive. Additionally, we will also explore the impact of one’s earnings on their benefits claim, the process of application for a tax refund from the HMRC and how pensioners can claim a tax rebate.

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.

At the end of a tax year, HMRC sends all taxpayers a P800 form which outlines details of their incomes and tax deductions for the entire tax term. Sometimes, you will find through the P800 that you are due for a refund. If this is the case, you will also be told whether you will be repaid the amount through an online bank transfer or a cheque sent through the post.

If not, you can reconcile with your bank statements and books of accounts to make sure that the document does not carry incorrect data and then contact the HMRC. To calculate your taxes and income accurately before contacting the HMRC, you will need the following:

  • your form P60 and/or P45 from your employer(s) or pension provider(s)
  • your form P11D from your employer, if you receive taxable benefits-in-kind
  • details of taxable state benefits that you have received
  • bank statements and  Building society statements 
  • dividend certificates
  • details of rental income and expenses

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 Tax Refund 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 with 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.

Tax refunds are usually paid by HMRC within 5 working days directly to the claimant’s UK account. If you do not claim it within three weeks, HMRC will send you a cheque through the post.

How Can I Claim A Tax Refund?

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 up to four years. This means that an overpaid tax in 2022 can be claimed until 2026.

You will also need your P60 form in the following situations:

  • to reclaim overpaid tax
  • to apply for tax credits
  • to serve as proof of income (if someone applies for a loan or a mortgage)

What Does A P60 Form Show?

A P60 form serves as a statement that shows details of a taxpayer’s income and paid taxes. It includes the following information:

  • The total amount of your income
  • The total amount of your tax deduction 
  • Your NIC contribution for the year
  • Your previous salary from an earlier employment
  • The total amount of previously deducted taxes
  • Statutory payments received by you (these may include maternity and paternity pay)
  • Your final tax code
  • Details of your student loan deductions (if any)

What Should I Do To Reclaim Overpaid Taxes On Pension?

To reclaim overpaid taxes while withdrawing funds from their pension, you can use the P55 introduced by HM Revenue and Customs for the tax year 2021-22. 

This form is only to be used if claimants:

  • do not have a P45
  • are not employed to work
  • are not claiming benefits

To access the P55 form online, claimants can use their Government Gateway user ID and password. If they don’t have one, they can register for the same.

The P55 form can be filled out online or by taking a printout and should be submitted to the HMRC by overtaxed individuals who fulfil the following conditions regarding a withdrawal from their pension pot: 

  • they have withdrawn a part of their pension
  • they will not be making regular withdrawals
  • their pension body has not made a refund

As a basic taxpayer, you would have been taxed at 40 per cent for making withdrawals from your pension. By filling in the P55, you are making a repayment claim to the HMRC to be repaid the excess tax deduction. If you fail to do so, you will have to wait until the end of the tax year for HMRC to pay back this amount. 

How Can I Repay Tax Credits Overpayment?

If you have been overpaid tax credits by the HMRC, they will inform you of the amount that is due from your end and the mode of repayment. However, how you repay an overpayment of tax credits to HMRC depends on the following factors:

  • you still get tax credit payments
  • you are claiming Universal Credit
  • you are receiving neither tax credit nor Universal Credit

If you still get tax credits, HMRC will simply reduce your tax credits to account for the overpayment. The amount that is reduced each month will depend on how much you receive from them and your household income. Below are the details of this reduction:

  • if your household income is £20,000 or less and you get maximum tax credits, the reduction will be10%
  • if your household income is £20,000 or less and you get less than the maximum tax credits, the reduction will be 25%
  • if your household income is more than £20,000, the reduction will be 50%

If you are claiming Universal Credit and have overpaid tax credits, your future payments will be reduced by the HMRC until your dues are cleared.

Tax credit overpayments can be repaid in any of the following ways:

  • Direct debit
  • Online and telephone banking
  • At your bank or building society
  • By cheque through postal service

Conclusion:

From the above discussion, we have learnt that when an individual receives a tax rebate from the HMRC, it is their responsibility to inform the Department for Work and Pensions of this additional (yet temporary) increase in income so that their Universal Credit payments may be adjusted accordingly. Should the authorities learn later on that income-related information was hidden on purpose for benefits claim, claimants may have to return the excess amount and face sanctions.

FAQs: Will Universal Credit Know If I Get A Tax Rebate?

Will HMRC tell Universal Credit about a tax rebate?

No, HMRC will not tell Universal Credit about a tax rebate. It is the claimant’s responsibility to honestly declare their income for a means assessment by Universal Credit.

Does a tax rebate come off Universal Credit?

A tax rebate counts as income during the period that it was received. Therefore, it will bear an impact on the Universal Credit payments that you receive. For every £1 above the earnings threshold, you will lose 63p.

Is a tax refund considered income?

Yes, a tax rebate is considered as income during the period that it was received. This is the reason why a tax rebate will impact your benefits claim.

What do they check for Universal Credit?

Your income through earnings, unearned incomes, capital, investments and savings will be checked for Universal Credit. This may be done through checking of benefits letters and bank statements.

Do tax rebates happen automatically?

Sometimes tax rebates take place automatically when HMRC realises an overpayment of tax which is usually in the previous year of tax term. In case of overpaid taxes in previous years, the claimant will have to apply through a refund application to reclaim excess payments.

References: 

The economics of universal credit | Tax Adviser

What is income for UC? « Entitlement to Universal credit « Guidance «

Does-tax-rebate-affect-Universal-Credit

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?

Claim back a flexibly accessed pension overpayment – GOV.UK

Estimate your Income Tax for the current year – GOV.UK

What if I pay too much tax?

Discussion: Tax Credit Overpayment – Rightsnet

What was missing from this post which could have made it better?

John has 22 years of experience in financial services. This spans across financial research, financial services (As a qualified mortgage broker and underwriter), financial trading and sales at global investment banks. While working as a publishing research analyst, he covered European bank credit and advised institutional clients on investment strategies at both JP Morgan and Societe Generale. John has passed all three levels of the CFA (Chartered Financial Analyst) programme.

John has 22 years of experience in financial services. This spans across financial research, financial services (As a qualified mortgage broker and underwriter), financial trading and sales at global investment banks. While working as a publishing research analyst, he covered European bank credit and advised institutional clients on investment strategies at both JP Morgan and Societe Generale. John has passed all three levels of the CFA (Chartered Financial Analyst) programme.