JSA and tax

[Halfacent]

Is JSA (contribution based) taxable?

Tax people have sent me a letter saying I was undertaxed last year. I worked part time and only for 24 weeks of 2012-13. I'd enough contributions to claim JSA while I looked for another job. Do they ever get the sums wrong? I m sure I never earned as much as they're saying. Also, why don't they take off tax from the JSA at source?

According to the HMRC website, JSA is taxable in certain circumstances. That said, HMRC are not infallible. They do make mistakes.

If you claimed JSA only all year it would fall below the tax threshold £8105 for 2012-13 so they don't routinely tax it . If you also earned a salary, your total income for that tax year may well be above this level and the difference subject to tax although presumably you paid PAYE at the time. Are they assuming you had alternative sources of income (savings interest, dividends etc) and did you receive a P45 ?

It is a taxable benefit, yes. So any you receive in a tax year would be included in your taxable income. It just isn't taxed at source.

JSA is a taxable benefit. (There are some complications but these relate to the payment of additional JSA for children, which will not have happened for you last year, or if you were claiming JSA as a couple, which it doesn't sound as though you are.)

Benefits are not taxed at source because very few of them generate an ongoing tax liability. If you had remained unemployed into the next tax year, then you wouldn't have to pay any tax. It would take the DWP weeks / months to get a tax code from HMRC - it couldnt put everyone onto an emergency tax code as most people getting JSA do not end up paying any tax on it. And by the time the tax stuff was all sorted, most people will either have got a new job or the tax year will be ending.

(The only serious remaining exception to this that I know of is Widowed Parents Allowance, which is not means tested but is taxable, so can be paid for many years whilst the recipient is happliy working and where it would make much more sense for it to be taxed at source.)

Thanks for the replies. I rang them (having put it off for days); spoke to a very helpful woman and it turns out they had estimated the amount of JSA I'd received as DWP hadn't sent them a P45. My tax bill came down from £400 to £120 in the space of a 5 minute phone call. Phew!