If the downturn is likely to affect you, you may find the following information helpful.
Tax and National Insurance Contributions (NICs)
Redundancy / unemployment
If you are being made redundant, you may be entitled to statutory redundancy pay. Your contract may entitle you to a higher payment than the statutory minimum and your employer may be more generous still. Some payments can be tax free. We explain this in the tax and redundancy section of our website.
If you become unemployed, you might not use your full tax free allowances this tax year. If so, you might be able to claim some tax back that you paid earlier in the year by completing form P50 and sending it to HM Revenue & Customs (HMRC).
NICs are calculated for each week or month you work and are not refunded if you lose your job part way through the year. Nevertheless they do count towards the contributory benefits which you might need to claim in the coming months, and ultimately towards your state pension.
Reduction in income
If you are an employee and remain in the same job but your income has dropped, for example because you are no longer required to work overtime, the Pay As You Earn (PAYE) system should recalculate your tax as you go along. If your PAYE Code is correct you need take no further action.
But if you are self-employed and your business profits fall, you might be able to claim to reduce the payments on account you make under self assessment.
If you are aged 65 or over, you are entitled to a higher age-related personal allowance unless your income is too high, in which case your age-related entitlement is gradually withdrawn until you get only the basic personal allowance. If you are in this situation, but your income falls over the coming months, make sure you check whether this entitles you to the higher age-related personal allowances.
Tax credits
It is important that with any change in circumstances, you consider your tax credits position and there are certain changes which must be reported to the Tax Credit Helpline. Do this within one month of the change.
Losing your job is a change that must be reported, as is any change in the normal pattern of your working hours if it means you were working 30 or more hours a week, but are now working less than 30; or you were working 16 or more hours, but are now working less than 16.
If your hours have fallen, it could be that you are no longer entitled to working tax credit. Nevertheless, if your normal working hours fall below 16 a week, or you stop work altogether, you should continue to receive working tax credit for a further four weeks under special 'run-on' provisions (scroll down to '4 week run-on'.)
Even if you remain in work (and with too high an income to qualify for tax credits) but you feel your job may be at risk, then there is an advantage in claiming tax credits in case you need to draw on them later (making a protective claim - scroll down to 'protective claims'). This way you will secure a nil award which can later be revised for the whole period of the award if necessary. Otherwise, if you leave it until you have fallen on hard times before claiming, your award can only be backdated by three months.
You should also consider making a ‘protective claim’ if you are self-employed, in case your profits fall.
If you remain in work but your income has gone down, you should consider telling the Tax Credit Helpline as this may increase your award; but – take care – if you over-estimate the reduction in your income you could be paid too much in tax credits which you might have to pay back later (see Doing the sums - scroll down to 'income falling then rising again').
Remember also that most childcare costs affect your entitlement to working tax credit. If a change in circumstances means that your childcare costs have changed, again, make sure you report it.
An unfortunate side-effect of losing your job and ceasing to receive working tax credit is that any prior overpayment debt which was being spread forward becomes due and payable within 30 days. You should resist demands for immediate payment and ask for it to be spread over at least 12 months or longer if your circumstances necessitate it. You can also ask for the debt to be deferred or written off if you are experiencing hardship.
State benefits
When you lose your job, you may be entitled to claim support from the state until you get back into work. You should contact your local Job Centre Plus for further information about your entitlements and you can find a lot of information on Directgov. Certain benefits (such as help with housing costs and school lunches) are administered by local authorities, so some of the links below direct you to contact them.
You may be entitled to claim Job Seekers Allowance, Housing Benefit, Council Tax Benefit, as well as other means tested benefits.
Qualifying for some benefits could also automatically entitle you to others, for example help with health costs, such as prescription charges, and free school lunches.
If you are aged 60 or over, you should check whether you are entitled to benefits such as Pension Credit and make sure you claim additional benefits such as the Winter Fuel Payment.
These are just some pointers to help you start checking what help you might be able to obtain – other support may be available depending on your exact circumstances (for example, disability or ill-heath may also be factors in making benefits claims). Local advice agencies can help you to navigate your way through the benefits maze – try contacting your local Citizens Advice Bureau for a full benefits check to make sure you claim all of your entitlements.
Other knock-on effects of a change
If you income goes down, or you start receiving state benefits or tax credits, that can mean that you automatically become entitled (or ‘passported’) to other state assistance that you may not have considered. We have previously written a number of articles on this subject.
For instance, your children might become entitled to Education Maintenance Allowance or you might be able to apply for assistance with insulating your home under the Government’s Warm Front initiative. If your children are at college or university (or indeed if you are a mature student), entitlement to grants or student loans could also be affected, so make sure you review student finance options.
Useful telephone numbers
ACAS (Advisory, Conciliation, Arbitration Service) – Advice on employment issues
0845 7474747 (Textphone – 0845 60 61 600)
Redundancy pay helpline
0845 1450 004
Labour Relations Agency (Employment issues for Northern Ireland)
028 9032 1442
Jobcentre Plus benefit claim line
0800 0556688 (Textphone – 0800 023 4888)
Jobcentre Plus – help finding a job
0845 6060234 (Textphone – 0845 60 55255)
Winter fuel helpline
0845 915 15 15 (Textphone 0845 601 5613)
Pension Credit helpline
0800 99 1234 (Directgov Textphone 0800 169 0133)
Benefits Enquiry Line
0800 88 2200 (Textphone 0800 243355)
Benefits Enquiry Line – help filling in claim forms
0800 44 11 44
NHS help with prescription costs helpline
0845 8501166
NHS Scotland
0800 22 4488
Education Maintenance Allowance
0800 121 8989
Tax Credit helpline
0845 300 3900 (Textphone 0845 300 3909)
National Insurance contributions
0845 302 1479 (Textphone 0845 915 3296)
National Minimum Wage helpline
0845 600 0678 (Minicom 0845 915 3296)
Newly self employed helpline
0845 915 4515 (Textphone 0845 915 3296)
Conclusion
As this article shows, there is a complex array of tax reliefs, allowances and exemptions, tax credits and benefits that you can call upon if you lose your job or your income falls. But claiming what you are entitled to can involve picking your way through a complex bureaucracy – HMRC for tax and tax credits, the Department for Work and Pensions (DWP) for most benefits, and the local authority for housing benefit and council tax benefit.
Despite the rhetoric of 'joined-up government', it is not always easy to get different departments to work consistently or coherently together.
We can only hope that the difficulties ahead will encourage them to rise to the challenge.
(03-11-2008)
Contact: Robin Williamson (Tel: 0844 579 6700, Fax: 0844 579 6701)
