Taxation of incapacity benefit

[hermit]

Mrs R has serious road accident in 2005. Incapacity benefit is received from DWP and tax is paid on it.

Court finds other party guilty. His insurers pay agreed amount of compensation -- Paid in two parts
(a) the DWP recover a sum equal to the benefit they have had to pay (b) balance of agreed sum is paid to Mrs R,

This situation is handled by the DWP's Compensation Recovery Unit who act under the Socal Security (Recover of Benefits) Act 1997 which enable DWP to recover their costs. in theory, this achieves an equitable result for all parties (a) DWP recovers its payments (b) insurer pays out agreed sum, but in 2 parts -- to DWP and Mrs R (c) Mrs Rr keeps the IB she has received, but her sum from the insurers is reduced. BUT the IB she received was taxed , while the sum paid by insurers to DWP was the gross amount.

Can she now recover the tax paid in IB ? It was correct at the time it was deducted (via PAYE from other earnings) . Can future statutory provisions enabling the DWP to recover its gross outlay affect the issue ?

thanks

[Ben Laws]

The answer is yes, but there are a couple of methods on how....

Could you inform me as to:

1. When did the Incapacity Benefit Cease? (date)
2. What is Mrs R doing since cessation of Incapacity Benefit ? (Employed or Not Working)

I can then point you in exactly the right direction.


Regards


Ben Laws
Partner
Pearson Laws LLP