SE76005 – Social Security benefits: payment in arrears, overpaid benefits and non-weekly payment

Section 41 FA 1989·

Payment of benefit arrears

Arrears of benefit may be paid in a lump sum. The arrears are chargeable for the year or years of assessment to which they relate.

The normal time limits for making assessments are extended in these circumstances by Section 35 TMA 1970 which allows assessments to be made at any time within six years after the end of the year of assessment in which the arrears were received.

Overpaid benefits

Where benefits have been overpaid the DSS may recover the overpayment by deducting amounts from current benefit payments. Where this happens the full amount of the current benefit, before any deductions to recover previous overpayments, is taxable. EP8387 explains the coding implications.

In any case where benefits have been overpaid in an earlier year the amount of benefit charged to tax for that earlier year should be reduced by the amount overpaid so that the individual is taxed on what he or she was entitled to, not on what she received.

This should be done when the individual makes a claim regardless of the steps taken by the DSS to recover the overpaid benefit. No tax repayment should be made in respect of any year which is out of date for assessment or amendment at the time the claim to repayment is made.

If there has been official error, or if this is alleged in respect of out of date years, submit to Personal Tax (Technical), Solihull.

Payments not made weekly

Claimants can choose to receive some benefits (for example, retirement pension) every four or thirteen weeks in arrears, rather than receiving the benefit each week.

Depending on payment dates, an individual who chooses to receive a state pension every 4 weeks in arrears, may receive 14 payments in a year (equivalent to 56 weeks benefit) but for income tax purposes the individual remains taxable to the 52 weeks pension entitlement that arose during the tax year ended on 5 April.

In the following year the individual may receive 12 payments equivalent to only 48 weeks entitlement but the taxable benefit will again be the 52 weeks entitlement.

The correct taxable amount is always the figure of weekly entitlement. If, exceptionally, the taxpayer claims to have completely foregone receipt of any benefit to which he or she was entitled, submit the case with a full statement of the facts to Personal Tax (Technical), Solihull.