× Search rightsnet
Search options

Where

Benefit

Jurisdiction

Jurisdiction

From

to

Forum Home  →  Discussion  →  Income support, JSA and tax credits  →  Thread

Income for tax credits purposes

AlexJ
forum member

Trafford Welfare Rights

Send message

Total Posts: 178

Joined: 4 July 2016

Hi

I have a client who earns approximately £10k per annum. She has recently realised that her employer has been underpaying her for the last 5 tax years (the hourly rate she was paid was lower than stipulated in her contract). She recently received a lump sum of arrears amounting to approximately £6k to rectify this underpayment. My feeling is that this will simply be treated as income for the current tax year (which will obviously have a substantial impact on the amount of tax credits she receives). But it seems more appropriate to apportion the payment according to the tax years for which it was due. I’ve had a look in CPAG, page 1420, and it does suggest that the first £30k of ‘taxable payments in connection with a change in your duties or wages’ are ignored, but this seems a little vague and I’ve reached a dead end in terms of following the legislation references regarding this. One of the references refers to a paragraph number in a HMRC guide that does not have numbered paragraphs, and the other refers to reg 4(1)(f) of the Tax Credits (Definition and Calculation of Income) Regs 2002, which in turn refers to Chapter 3 of Part VI of the ITEPA, which I am finding fairly impenetrable. The relevant chapter is here:

http://www.legislation.gov.uk/ukpga/2003/1/part/6/chapter/3/crossheading/preliminary

Any thoughts would be greatly appreciated.

Many thanks

Jol

Surrey Adviser
forum member

Benefits and debt adviser - Esher CAB, Surrey

Send message

Total Posts: 222

Joined: 17 June 2010

I trust others can answer your query concerning the Regs.  But how has this payment been treated for income tax and NI?  If it has been taxed/NI’d all in the current year would that not lead HMRC TCO to treat it all as current year for TCs also?

Mark Willis
forum member

Welfare rights worker - CPAG in Scotland

Send message

Total Posts: 142

Joined: 17 June 2010

Hi Alex

The reference on page 1420 footnote No.27 in the CPAG handbook is to EIM12975-79 (which it’s fair to say are online pages, rather than paragraphs, so we’ll fix that to make it clearer in future, thanks)
https://www.gov.uk/hmrc-internal-manuals/employment-income-manual/eim12975
However, I don’t think these will pages alone answer the question in this situation.
I think start at TCTM 04111 https://www.gov.uk/hmrc-internal-manuals/tax-credits-technical-manual/tctm04111
which then refers on to EIM12950-12970 (compensation).
Very broadly speaking, as I understand it, the disregard applies to a compensation payment for the delay rather than the wages themselves. So I think this leaves you where you started, under TC(DCI) Reg 4(1), “employment income” means any earnings from an office or employment received in the tax year, and from what you have said does not seem to fall under any of the listed disregards for expenses etc.

Mark