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10 ways for employees to boost income during the COVID-19 pandemic
The coronavirus (COVID-19) pandemic has resulted in an unprecedented jobs and income situation. Your finances may have already come under some strain or you may be worried that they will do in the future. We don’t have all the answers, but in this article we offer you some hints and tips on how you may be able to boost your income during COVID-19, in those areas within our remit: pay, tax and benefits.
1. Make sure you have been paid correctly under the JRS
If you were furloughed by your employer, you should check whether or not you have been paid correctly under the Job Retention Scheme (JRS).
The JRS has been a lifeline for many but it is important to remember that it was rolled out quickly and the underlying scheme rules are quite complex. This means it is possible that some employers will have made mistakes in their furlough pay calculations.
For example, one thing that only became clear sometime after the JRS had been rolled out, was that the ‘higher of’ calculation (to work out furlough pay for variable workers), was intended to be done each and every pay day. Anybody that is a variable worker, and who has received the same amount of furlough pay each pay day, may have been underpaid.
We have an article that explains how employers should go about rectifying JRS underpayments on our website, which you might find useful in terms of researching the position further.
2. Make sure you are not paying too much income tax
One way of maximising your take home income, is to make sure you aren’t paying too much tax. When looking at how much tax you pay, it is really important to check your tax code is correct.
We explain how to check your tax code on our website.
In particular, you should check whether there are any expenses of employment you can claim tax relief for (you can get a cheque for past tax years and your tax code adjusted for the current and future years). We look generally at what expenses you may be able to claim relief for on our website.
If you are able to claim tax relief on your unreimbursed expenses of employment, those same expenses should reduce the amount of income that is taken into consideration for universal credit (UC) and working tax credit (WTC) (more on this below), which can increase your award. However, UC usually uses earnings information received from your employer to set awards, which does not include unreimbursed expenses amounts. You will therefore need to provide DWP with the amount of your expenses to make sure they are taken into account.
3. Review your High Income Child Benefit Charge (HICBC) position
The COVID-19 pandemic is causing many people to see a reduction in their income. This can mean there can be knock-on effects to your tax position or those of family members, around things like the HICBC.
If you or your partner usually earn more than £50k a year, you probably have to pay the HICBC – a tax charge which basically claws back some or all of the child benefit you have received. Many people subject to the HICBC prefer to stop receiving child benefit, rather than receive it, only to have to pay it back (although this can mean you lose out on National Insurance credits you may be entitled to).
However, if you or your partner’s income falls, your liability to the HICBC may change or be eliminated completely. Where this is the case, if you do not currently claim child benefit, you may wish to consider claiming it. If you claim child benefit, but have opted out of receiving payment, you may wish to restart payments.
We explain what you need to consider on our website.
4. Review your Marriage Allowance position
Under the Marriage Allowance, if your income has dropped to less than the personal allowance but your husband or wife pays tax at 20%, then you can give up some of your unused personal allowance, to reduce the amount of tax they pay.
In the current tax year, this could save £250 between you.
The Marriage Allowance can also be helpful even if you earn more than the personal allowance, where the income that you have is taxed at less than 20% (i.e. dividends). There are some other quirks to the way that the Marriage Allowance works – so it is really important to read the guidance that we have on it before making a claim.
5. Take another job, including in the gig economy
If so, in terms of your tax when you start a new job, you should be asked to complete a Starter Checklist (this used to be known as form P46). If the new job is a second job, you should tick box C – this will ensure that your earnings from your second job are taxed at the flat rate of 20%. In most cases, this will give the right result. However if you are on a low-ish income, 20% flat rate can be too much and there can be a cash flow issue until you get your P800 calculation and tax refund at the end of the tax year.
But don’t panic, you should consider if you can split your personal allowances as we explain in our article: Taking on an extra job? Check your tax!.
In addition, or as an alternative, you might want to consider if there is something you can do on the side, like running errands or making deliveries in the gig economy.
If the extra work you do is not as an employee, you may be able to use the Trading Allowance.
Under the Trading Allowance, if your income from self-employment or from very casual activities is less than £1,000 then there is no tax to pay on it and nothing to report to HMRC. If the income is above £1,000 then you can elect (choose) to deduct the Trading Allowance from the income instead of deducting actual expenses. This is very useful if you don’t have many actual expenses.
There is more information about the Trading Allowance on our website.
For those whose income is not covered by the Trading Allowance, our gig economy factsheet explains what you need to know about managing your tax position.
6. Online selling
Rather than throwing out or recycling your old things or things you don’t use anymore, you could see if you could sell them online to help bring in some extra money.
Money from selling old or unused personal belongings is not subject to income tax. Unless you are selling high value personal items, then there shouldn’t be any capital gains tax to worry about either – even if you sell them at a profit.
If you regularly sell things you have bought or made specifically to sell on, you may be trading, which is, typically, subject to income tax (although you could use the Trading Allowance – see above). Our article Newly self-employed? Check out our Top 10 tips to manage your tax and National Insurance explains more about how to tell the difference between non-trading and trading income.
As well as selling, you can also do things like rent out an owned asset, e.g. your car or your driveway or to bring in a bit of extra money. Although this may be generating taxable income for you, you could potentially use the Trading Allowance (see above) against income from renting out your car or other machinery/equipment you may own. A similar £1,000 allowance to the Trading Allowance is available to use against income from your property, such as your driveway, which is called the property allowance. You could potentially make use of both allowances!
7. Rent out a room in your house
A relatively simple way of increasing your income is to rent out a room in your home, if you have the space.
The good news is that to try and encourage people to do that, the Rent a Room scheme lets you earn £7,500 a year tax-free.
This allowance is reduced to £3,750 per person if there is more than one person receiving the income – so for example, if you and your partner let a room in your house to a lodger, then you can each receive £3,750 tax free.
We look at Rent a Room relief in more detail on our website. Please be aware that if you are letting a space in your own home that is self-contained or you are letting a room to more than one lodger, it could affect the capital gains tax position if and when you come to sell your home.
In addition there are some other things that you need to check, for example, whether you need permission from your landlord or mortgage lender and whether there are any health and safety or insurance considerations.
8. See if you are entitled to any welfare benefits
If you are experiencing financial difficulties, it is always worth doing a thorough benefits check, for example by speaking to a welfare rights adviser or using a benefits calculator (there are three main ones – Entitled to, Turn 2 Us and Policy in Practice).
Up until recently, the main benefit for people in work was Working Tax Credit (WTC). If you are on WTC and your income has reduced by more than £2,500 in 2020/21 as compared to 2019/20, you may be entitled to an increase in WTC – you should speak with HMRC and give them an estimate of your current earnings as soon as possible, as we set out in our website guidance.
The majority of people can no longer make claims to WTC. Instead, if you need financial support you will need to claim Universal Credit (UC), which is administered by DWP. UC is replacing: Housing Benefit, income-related Employment and Support Allowance (ESA), income-based Jobseeker’s Allowance, Child Tax Credits, Working Tax Credits (WTC) and Income Support.
⚠️ Warning: If you are already in receipt of tax credits and find yourself needing extra financial support, for example you need to claim help with paying your rent, you may be advised to claim UC. But, if you are currently receiving any of the benefits UC is replacing, they will end when you make a UC claim, even if you are subsequently found to be not entitled (due to capital or their partner’s earnings). Please: always speak to a welfare rights adviser before claiming or changing any benefits.
UC is a monthly payment and the amount of UC you are entitled to is based on your personal circumstances and also your ‘net pay’ in a monthly assessment period. Your net pay information is generally taken from the RTI (Real Time Information) return that your employer must submit to HMRC each time you are paid (which is then sent to DWP).
This means that UC can be responsive to work changes, but it can cause problems if the pay information sent in from the employer is wrong or late for example. There can also be problems even where there has been no such error – for example, if you are paid weekly, in some months, there will be 4 weeks’ pay and in some months there will be 5 weeks' pay and your UC award can fluctuate up and down.
We look at other scenarios where your UC payment may not be the amount you expect, and what you can do about it, on our website.
9. Check if you can benefit from Help to Save
Most working UC claimants and WTC claimants, can open a Help to Save account – which pays a tax-free bonus of up to 50p per £1 saved. We recognise that saving spare cash may be the last thing on your mind in the current circumstances but if you are eligible, then it is something to consider. This is because while you may not be in a position to save at the moment, the account remains open for four years from the point it is opened, even if you subsequently stop claiming benefits. It is therefore possible to take advantage of the scheme when your financial circumstances improve, as we set out in our article: LITRG highlights savings opportunity for new universal credit claimants.
10. Other considerations
There are many other ways to make money and/or reduce expenditure. Here are some useful links that may be helpful:
Here is some more general advice on what the coronavirus means for you, including if you have less money:
If you are struggling financially, you could check with your local council regarding discretionary support, such as with council tax or housing payments.
Our LITRG coronavirus guidance can be found on our website. This includes information on the support available if you get ill or are asked to self-isolate because of the coronavirus and guidance on taking money from your savings and pension.
Our Specialist tax credits/UC guidance can be found on RevenueBenefits.
Contact: Meredith McCammond (click here to Contact Us)
(First published: 05/10/20)