SK & Anor v Secretary of State for Work and Pensions

Where an employee of a Real Time Information employer receives remuneration or a PAYE adjustment during a universal credit assessment period, the reported amount is ordinarily decisive under regulation 61(2) of the Universal Credit Regulations 2013. A PAYE tax adjustment paid by the employer is therefore treated as employed earnings, regardless of whether regulation 55(4A) applies to repayments received directly from HMRC. For regulation 55(4A), a person remains “in paid work” while employed under a subsisting contract, even during unpaid sick leave. A tribunal errs in law by treating that provision as applying to in-year HMRC refunds, although that issue was unnecessary to the result. The appeal was allowed only to set aside and remake the First-tier Tribunal’s legally erroneous decision; the practical outcome remained unchanged.

The appellants made a joint claim for universal credit. The first appellant remained employed under a subsisting contract but was on unpaid sick leave. His employer paid a one-off bonus, deducted tax under PAYE, and later paid him an amount representing over-deducted tax. The amount reported through Real Time Information was treated as employed earnings for the relevant assessment period, resulting in no universal credit payment.

The First-tier Tribunal dismissed the appeal, holding that the claimant was in paid work because his employment contract continued and that regulation 55(4A) applied. The Upper Tribunal considered whether the tax repayment should be included as earnings, the meaning of “in paid work”, the timing of entitlement to the bonus, and the effect of the PAYE and universal credit provisions.

1. Outcome. The appeal was allowed because the First-tier Tribunal had erred in law by proceeding on the basis that regulation 55(4A) of the Universal Credit Regulations 2013 applies to in-year refunds. The decision was set aside and replaced with a decision to the same practical effect.
2. PAYE and Real Time Information. Regulation 54 requires earned income to be calculated by reference to actual amounts received unless Chapter 2 provides otherwise. Regulation 61(2) provides the applicable mechanism where the claimant is or has been engaged in employment with a Real Time Information employer. The claimant’s employment contract remained in force, so the employed earnings reported by the employer were to be used. A tax adjustment paid through the employer’s PAYE operation was consequently properly included as employed earnings.
3. Regulation 55(4A). The provision concerns repayments received by a person from HMRC. It was introduced to require direct HMRC repayments to be treated as employed earnings in specified circumstances. It does not govern a payment made by the employer through PAYE. Its non-application therefore had no effect on the result.
4. Meaning of “in paid work”. Although not essential to the decision, the Upper Tribunal agreed with the First-tier Tribunal that a person employed under a subsisting contract is “in paid work” for regulation 55(4A), even if no work is actually being performed during unpaid sick leave. The relevant distinction is between being in paid work and doing paid work at a particular time.
5. Bonus and tax year. The bonus was discretionary and no entitlement arose until the employer exercised its discretion. On the evidence, entitlement arose in the 2020/21 tax year. The claimant had not shown a material factual error by the First-tier Tribunal. The reasoning also applied to subsequent assessment periods, although those periods were not themselves before the Upper Tribunal.

• Upper Tribunal (Administrative Appeals Chamber): allowed the appeal, set aside the First-tier Tribunal’s decision under section 12(2)(a) and (b)(ii) of the Tribunals, Courts and Enforcement Act 2007, and substituted a decision to the same effect.
• First-tier Tribunal (Social Entitlement Chamber): dismissed the appellants’ appeal against the Secretary of State’s decision on 13 July 2021 under number SC154/21/00129.