A tax rebate received from HMRC can be classed as earned income for universal credit purposes.
To qualify as earned income refunds of income tax should generally be from a tax year during which you were employed and the refund hasn’t previously been categorised as self employed earnings.
According to DWP’s staff guidance:
“Repayments of income tax may include tax relating to other sources such as unearned income. As long as the claimant was in paid work in the tax year the repayment relates to, then the whole repayment is treated as earnings.”
If your tax rebate is classified as earned income during an assessment period the amount of universal credit you are entitled to for that month can be impacted.
Receiving a tax refund might increase your income beyond the universal credit taper rate threshold, potentially leading to a reduction in the amount of universal credit you receive.
For every £1 that you or your partner earns, the payment is currently reduced by 55p. This reduction is automatically applied to your universal credit payment.
Universal credit requires you to report a tax refund and/or a national insurance refund from HMRC as a change in your circumstances to ensure you are not overpaid.
Are employer expenses earned income for universal credit?
Tax-deductible expenses are not considered part of an employee’s earnings. In other words, when an employer reimburses allowable expenses for example a mileage allowance, they do not count as earned income for universal credit.
How do I report my tax rebate to universal credit?
Universal credit makes it easy to report your tax refund to them so they can update your record and make any necessary adjustments to your UC payments.
Not reporting your tax refund to UC will be seen as a failure to report earned income. HMRC shares tax related information with the DWP which could result in a future issue relating to your refund of tax and the payments you receive from universal credit.
Do I put universal credit on a self assessment tax return?
Universal credit is exempt from tax for both employed and self employed individuals, and does not need to be reported on a self-assessment tax return.
