4. Benefits
In general, benefits that are not taxable are disregarded when calculating tax credits, and benefits that are taxable are included. For full details of the way social security benefits are treated, see CPAG’s Welfare Benefits and Tax Credits Handbook.
Benefits disregarded include:1Reg 7(3) TC(DCI) Regs •bereavement support payment;
•child benefit;
•disability living allowance;
•personal independence payment;
•income-related employment and support allowance (ESA);
•guardian’s allowance;
•housing benefit;
•income support (except to strikers);
•income-based jobseeker’s allowance (JSA);
•industrial injuries benefit;
•maternity allowance;
•social fund payments;
•most war pensions;
2Reg 5 TC(DCI) Regs •increases for a child or adult dependant paid with any of the above benefits.
Benefits taken into account in full include:
•carer’s allowance;
•contributory ESA;
•long-term incapacity benefit;
•contribution-based JSA. Note: amounts above the ’taxable maximum’ are ignored. In practice, people are not paid above this amount, so in the majority of cases all contribution-based JSA is included;
•increases for a child or adult dependant paid with any of the above benefits.
Benefits partly taken into account include:
•state retirement pension (and private and occupational pensions);
•widowed parent’s allowance.
These are included in the tax credit calculation, except for the first £300 of the total income from pensions, and income from capital and foreign income, which is disregarded.