tax demands for those on incapacity benefit?

I have been asked about someone who has been asked to repay income tax by HMRC, apparently because they have been claiming incapacity benefit as well as getting DLA, and they had not informed HMRC about the IB?
The query comes from someone who thinks that this is happening quite widely to people on IB who have not previously declared this.

This is not something I have come across before and am not sure where to find out more information. I don’t think it is linked to the ressessment from IB onto ESA - but really I haven’t a clue!
Any ideas please?

Receipt of DLA is a red herring as that is not taxable.  For income tax purposes people are either self assessment (usually the self employed) or fall under PAYE (employed earners).  PAYE taxpayers have their income tax deducted at source, from earnings and benefits.  They usually don’t have to declare this type of income.  Other income, they might.

Those under self assessment do have to declare and it may be people in this group who are being caught.  However, if you are overpaid tax credits because of a failure to disclose taxable income then one method of recovery is to class the overpayment as an underpayment of income tax under PAYE and recover it as such.  Hope this is a good starting point for you but, if it’s not about overpaid tax credits, then you might want to talk to a financial adviser.

In the event that this is in fact linked to the ESA transition, see http://www.dwp.gov.uk/docs/ib-reassessment-information-pack.pdf

Under the reassessment exercise, contribution-based Employment and Support Allowance replaces both Severe Disablement Allowance, which is not taxable, and Incapacity Benefit, which normally is (the exception being where a claimant was receiving Invalidity Benefit before April 1995 and has been receiving Incapacity Benefit for the same illness ever since - in these circumstances, the benefit has not been taxed).

Under existing provisions, contributory earnings-replacement benefits like contribution-based Employment and Support Allowance are taxable, but income-related benefits, such as income-related ESA, are not. If, as a result of reassessment, claimants previously in receipt of a benefit that was exempt from tax become entitled to contribution-based Employment and Support Allowance, they may now be liable to pay income tax. How much tax, if any, they have to pay depends upon whether they receive any other income, for example, an occupational pension.