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 in some circumstances to overpay income tax and be due a tax refund.

Common examples are if you only work for part of or have more than one job in any one tax year.

Tax refund when on universal credit example

An example of when you could overpay tax when receiving universal credit is when you have had more than one job during a tax year and an incorrect tax code has been used.

This can happen if you don’t have a P45 available when you start a new job and an emergency tax code is used.

At the end of the tax year a tax refund is due because in this example the emergency tax code lead to too much income tax being deducted.

Does a tax refund count as income for universal credit?

Yes, your tax refund is classed as income for the purposes of your universal credit. Your refund of tax will 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.

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 as you would on other income through PAYE. In the same way you do not 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.

You can reclaim your tax refund through your personal tax account, HMRC app or receive a 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.

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.