Am I due a Tax Refund when on Universal Credit?

A tax refund is due when you have overpaid income tax on income earned through PAYE (Pay as you Earn).

For taxpayers who claim universal credit it is quite easy through no fault of your own to overpay income tax and be due a tax refund.

HMRC can repay some tax refunds automatically but in other circumstances universal credit claimants need to reclaim what is owed.

Checking whether you might be due a tax rebate is worthwhile, particularly if you’ve experienced any of the common scenarios we cover below during the current or previous four tax years.

Tax refund when on universal credit examples

Individuals who currently claim univeral credit or have in the past can qualify for tax refunds in several situations including:

Having multiple jobs: Particularly if you have more than one job during the same tax year or at the same time, you can be given an incorrect tax code. Emergency tax can be deducted by your employer(s) which should be refunded when your tax code is corrected.

Starting a new job: If you start a new job and don’t have a P45 available from your last job an emergency tax code can be used. An emergency tax code usually ends in a W1, M1 or X and generally results in too much tax being deducted.

Losing your job: If you’ve recently faced job loss or redundancy, you may be eligible to reclaim a portion of the tax you paid during your employment.

Work-related expenses: Many taxpayers don’t realise they can claim tax relief for necessary job expenses like: Uniform cleaning and maintenance, tools and equipment purchases and travel costs to temporary places of work.

Does a tax refund count as income for universal credit?

Yes, your tax refund can be classed as income for the purposes of your universal credit. Your refund of tax may be included in the calculation used to work out how much universal credit you will be entitled to.

A tax refund could bring your income above the taper rate threshold which could mean the value of your universal credit is reduced.

Universal credit expects you to report your tax refund as a change in circumstances so you keep getting the right amount.

Is my tax refund taxable like other income?

No, if you receive a tax refund you will not be liable to pay income tax in the same way as you would on other income through PAYE. In addtion you don’t need to pay national insurance contributions on a PAYE tax refund.

How to claim your tax refund when on universal credit

The tax office may review your record and automatically repay your tax refund. You will be sent a P800 tax calculation through the post explaining the figures used to calculate your refund.

The fastest way to claim your tax rebate is through HMRC’s online services. If your P800 calculation indicates you can claim online, the government gateway provides a straightforward process:

• Visit the Government Gateway website.
• Answer eligibility questions.
• Create a government gateway user ID (if you don’t already have one).
• Log in with your credentials.
• Follow the prompts to request your refund.

After completing these steps, HMRC typically processes online refunds within five working days. This method requires you to have online banking set up, your national insurance number, and the reference number from your P800 letter.

You can also receive a tax rebate cheque through the post if preferable.

Tax refunds are not always automatically repaid by HMRC

Sometimes you will not receive a tax refund automatically which means you should check your own P45 and P60 records and contact HMRC to ask for a reconciliation of your record to allow for any refund to be repaid.

For a more proactive approach, HMRC offers online services that help determine if you’re owed a rebate:

The income tax calculator on the HMRC website allows you to check if you’re paying the correct amount of tax. To use this service effectively, you’ll need:

• Details of your annual income.
• Information about any benefits or expenses.
• Your current tax code.
• Records of any tax already paid in the current year.

Additionally, creating or logging into your personal tax account gives you a comprehensive view of your tax affairs. This online portal allows you to:

• Check your current tax code and see how it’s calculated.
• Inform HMRC about changes to your circumstances.
• Claim tax refunds.
• Check your income tax estimates.

At the same time you should question if you are entitled to claim tax relief on any allowable employment expenses incurred because of your job.

If you are you can increase the amount of tax refund you may be due and decrease the amount of income tax you pay going forward.

Check you are being paid the national minimum wage

Universal credit claimants should also check to make sure they are being paid the correct hourly wage.

The national minimum wage typically increases at the start of each new tax year so checking that your hourly rate meets either the national minimum or national living wage standards is important.

Your employer can make adjustments if necessary to ensure you are paid your full entitlement.