Under and overpayments

When a client has been underpaid Veteran's Pension and is owed arrears, MSD will work out the amount of tax and pass this on to Inland Revenue.

The amount is included in the end-of-year tax assessment for the current tax year, regardless of the period that the underpayment covers. This is different to how arrears payments for main benefits are taxed.

Example

A client is paid arrears on 12 June 2026. This payment represents arrears for 25 March 2026 to 3 June 2026.

The whole arrears payment will be included in the client's end-of-year tax assessment for 1 April 2026 to 31 March 2027 (the current tax year).

If a client has been overpaid, the overpayment is always established for the net amount. Inland Revenue will return the tax portion of the overpayment directly to MSD.

The overpayment will reduce the amount of benefit and tax paid in the tax year in which the overpayment was made, that is, the overpayment will directly relate to the tax year in which it occurred.