View the related Tax Guidance about Working tax credit
Non-taxable state benefits
Non-taxable state benefitsThe majority of state benefits (also called social security benefits) are managed by the Department of Work and Pensions (DWP) via the Jobcentre Plus.More information on the range of state benefits that may be available to individuals in the UK can be found on the GOV.UK website.For benefits in Scotland, see Social Security Scotland on GOV.SCOT. For the position on welfare benefit in Wales, see GOV.WALES. The Scotland Act 2016 devolved significant welfare powers to the Scottish Parliament, including the right to create new benefits and responsibilty for some existing benefits. The tax status of benefits is determined by the UK parliament. The position in Wales is under review, with the majority of benefits administered at UK level, though the Welsh Government and local authorities in Wales continue to administer some grants and allowances. For policy position in Wales, see Wales centre for public policy. Table of non-taxable UK state benefitsFor completeness, this table is based on ITEPA 2003, s 667 which includes some benefits which are no longer in payment.The following UK state benefits are not taxable and should not be reported on the tax return:State benefitPayable underAdult disability payment (from 2021/22 onwards)SS(S)A 2018, ss 24, 31Attendance allowanceSSCBA 1992, s 64SSCB(NI)A 1992, s 64Back to work bonusJobseekers Act 1995, s 26JS(NI)O 1995, Art 28Bereavement paymentSSCB(NI)A 1992, s 36Best start grantSS(S)A 2018, ss 24, 32Child benefitSSCBA 1992, s 141SSCB(NI)A 1992, s 137Child’s special allowanceSSCBA 1992, s
Support for beneficiaries in receipt of benefits or social care
Support for beneficiaries in receipt of benefits or social careThis guidance note outlines why trustees should be aware of the financial circumstances of beneficiaries and whether they are in receipt of means tested benefits. It also outlines the means tested and non-means tested benefits and social care and where to find out more information about the relevant income and capital limits.This note relates to England only and the position in Scotland, Wales and Northern Ireland may be different. In respect of Scotland and Northern Ireland see Simon’s Taxes I5.8 for information in respect of those jurisdictions generally and the Scottish Government benefits website and the Scottish Government social care website for details of benefits and social care in Scotland.OverviewSometimes beneficiaries may be in receipt of state benefits. The reason that the trust was created may have been to support one or more vulnerable beneficiaries who are in receipt of such benefits or their receipt of them may be an incidental matter. When considering how to apply funds from the trust either by way of an income or capital payment (see the Payments to trust beneficiaries guidance note for further details) trustees should be aware that the receipt of such distributions may affect the benefit entitlements of such a beneficiary. Means tested benefitsSome benefits are means tested. Means testing involves a financial assessment of the claimant’s level of income and their capital. Income and capital above certain thresholds result in a reduction of the benefit paid. Trustees need to be
Land and buildings ― building work ― extensions, improvements, maintenance and repairs
Land and buildings ― building work ― extensions, improvements, maintenance and repairsThis guidance note provides information on the VAT treatment of extending, improving, maintaining and repairing buildings located in the UK.For further commentary on the legislation and case law please refer to De Voil Indirect Tax Service V4.407, V4.408 and V4.413.Work on buildings located outside the UK is outside the scope of UK VAT but may be subject to VAT or a similar tax in another country. For information on VAT in the EU please refer to the VAT in the EU guidance note. For information on VAT outside the EU please refer to the VAT outside the EU guidance note. The general distinction between work carried out in relation to an existing building and work constructing a new buildingWork carried out to extend, improve, maintain or repair an existing building:•may be carried out on a standalone basis in relation an existing building•may be carried out in the course of converting an existing building•is, subject to the exception explained below, distinct from work carried out in the course of constructing a new buildingThe general rule is that work carried out to extend, improve, maintain or repair a building of any description is distinct from work carried out in the course of constructing new buildings. The exception to this general rule is that an existing building of any description may be enlarged or extended in the course of constructing a new dwelling or dwellings. For example, an
Notional income and anti-avoidance for tax credits
Notional income and anti-avoidance for tax creditsThis guidance note considers special tax credit rules which can treat someone as having income they have not actually received.Migration of tax credits to universal creditNew claims for tax credits are no longer possible as they have been replaced by the universal credit for all claimants. Existing claimants will continue to receive tax credits until they are migrated to the universal credit system. Migration will take place when a change in circumstances is reported or when a migration notice letter is received. This is expected to be completed in 2024. There is information about migration notice letters on the GOV.UK website.See the Universal credit guidance note.Anti-avoidance for tax creditsThe tax credits legislation makes very little mention of specific anti-avoidance rules. Instead, it refers to ‘notional income’ which is income that is treated as the claimant’s income even though the claimant did not receive it. For example, these rules apply where claimants:•deliberately get rid of income in order to claim or increase their tax credits•fail to apply for income to which they are entitled•provide a service for low rates of paymentTCTM04801When advising a director of an owner-managed company in relation to tax credits, this is a key point. Clients may think that drawing minimal income from their company will enable them to increase not only tax credit claims but also give access to other Government support. The notional income provisions overrule such an approach.There are four different types of notional income
Research and development SME tax reliefs
Research and development SME tax reliefsThis guidance note provides information on the R&D reliefs available specifically to companies which are small and medium sized enterprises (SMEs). The definition of an SME is detailed in the Research and development (R&D) relief ― overview guidance note. The Qualifying expenditure for R&D tax relief guidance note provides information on what expenditure qualifies for SME relief.See also Simon’s Taxes D1.419, D1.420.For accounting periods beginning on or after 1 April 2024, SMEs can claim relief for qualifying R&D expenditure under the merged RDEC scheme. See the Research and development expenditure credit (RDEC) guidance note. Only loss making SMEs which meet an R&D intensity condition can claim the more generous SME reliefs described in this guidance note. This is sometimes referred to as the ‘SME intensive scheme’ or ‘ERIS’ (enhanced R&D intensive support).For accounting periods beginning before 1 April 2024, SMEs can claim RDEC only for contracted out, subsidised or capped expenditure by SMEs that does not qualify for the SME scheme. Otherwise, SMEs can only claim for relief under the SME scheme, whether or not the company is loss making or R&D intensive.R&D intensive SMEsA company meets the R&D intensity condition for an accounting period if its R&D expenditure is at least 30% of its total expenditure for the period. If the company is connected with any other companies, the test is applied to the expenditure of all of the connected companies. Where the claimant company’s accounting period does not fully coincide with that
Research and development expenditure credit (RDEC)
Research and development expenditure credit (RDEC)This guidance note provides information on how research and development expenditure credits (RDEC) are calculated and utilised. The Qualifying expenditure for R&D tax relief guidance note provides information on what expenditure qualifies for RDEC.See also Simon’s Taxes, D1.417, D1.435A.The RDEC is a taxable credit which is payable to the company in accordance with the seven steps set out below. For accounting periods beginning on or after 1 April 2024, RDEC can be claimed by a company of any size which carries on a trade. Loss-making R&D intensive SMEs can, however, claim under the SME intensive scheme, as an alternative. See the Research and development SME tax reliefs guidance note for more on the SME intensive scheme.For accounting periods beginning before 1 April 2024, RDEC is primarily for large companies and the SME scheme applies to SMEs. Where an SME cannot claim SME R&D relief on qualifying expenditure because it is capped, subsidised or subcontracted out to the SME, then it may instead be able to claim under RDEC. For details of the restrictions on SME qualifying expenditure, see the Research and development SME tax reliefs ― SMEs and the R&D expenditure credit (RDEC) guidance note for further information.For the definitions of an SME and a large company, see the Companies eligible for R&D tax relief guidance note.Amount of RDECRDEC is calculated by applying a specified percentage to the company’s qualifying expenditure. For expenditure incurred on or after 1 April 2023, the percentage is 20%.
Computing the working tax credit
Computing the working tax creditThis guidance note looks at the various elements of working tax credit and how an award is calculated.Migration of tax credits to universal creditNew claims for tax credits are no longer possible as they have been replaced by the universal credit for all claimants. Existing claimants will continue to receive tax credits until they are migrated to the universal credit system. Migration will take place when a change in circumstances is reported or when a migration notice letter is received. This is expected to be completed in 2024. There is information about migration notice letters on GOV.UK.See the Universal credit guidance note.New claims to working tax credit (WTC) cannot be made, but WTC may be added to an existing child tax credit (CTC) claim (see ‘Working Tax Credit’ on GOV.UK).Entitlement to working tax creditsA claimant is entitled to make a claim for working tax credit (WTC) provided the claimant satisfies the conditions of being in qualifying remunerative work and is physically present and ordinarily resident in the UK. See the Entitlement to tax credits guidance note.There are a number of special rules that apply to EEA citizens that come to the UK but, for the purposes of this guidance note, it is assumed that the tests for claiming WTC have been met.For more on EEA citizens, see the GOV.UK website:•Benefits and pensions for EEA and Swiss citizens in the UK•WTC/FS6: Tax credits ― leaving the UK (updated to 6 April 2021)TCTM02001 includes guidance
Childcare and workplace nurseries
Childcare and workplace nurseriesIntroductionA number of employers will provide workplace nursery facilities for their employees. The provision of childcare benefits affords some potentially large tax savings as it allows all or part of the childcare costs to be funded by the employer free of income tax and NIC. Broadly speaking, the legislation covers two forms of exemption: childcare provided at the workplace and other childcare.The various exemptions are found at ITEPA 2003, s 318 onwards.From 6 April 2017, there have been significant changes to the operation of tax efficient childcare. While many of the historic arrangements continue, there are transitional arrangements for childcare vouchers which will close to new entrants on 4 October 2018. It is worth noting that the administration of many of the tax efficient schemes will be through public agencies rather than through employers.Workplace nurseriesWhere specific criteria are met, the provision of workplace nursery facilities are exempt from tax, NIC and reporting requirements. If these criteria are not met, then a taxable benefit may arise. The requirements for the exemption are found at ITEPA 2003, s 318 and relate to:•the child•the premises on which care is provided and the registration requirements•the person or persons who make the premises available•the extent to which the care is available to the employer’s employeesThe child must either be:•a child or stepchild of the employee, maintained at the employee’s expense•living with the employee•under the parental responsibility of the employee (ie have the same legal
Entitlement to tax credits
Entitlement to tax creditsThis guidance note looks at the eligibility criteria for working tax credit and child tax credit.Migration of tax credits to universal creditNew claims for tax credits are no longer possible as they have been replaced by the universal credit for all claimants. Until January 2021, it was possible for those entitled to severe disability premium (SDP) to make a new claim for tax credits, but SDP claimants are now also being migrated to universal credit.The position of refugees and some other groups can be complex (see Tax Credits: Backdating on the revenuebenefits website). Existing claimants of tax credits will continue to receive tax credits until they are migrated to the universal credit system. Migration will take place when a change in circumstances is reported , or when a migration notice letter is received. This is expected to be completed during 2024. For information about migration notice letters, see the GOV.UK website.See the Universal credit guidance note.Residence rules for tax credit claimantsTo be eligible for tax credits, the individual must usually live in the UK ― that is England, Scotland, Wales or Northern Ireland. The UK does not include the Channel Islands or the Isle of Man. For claims made on or after 1 July 2014, the claimant must have been living in the UK for three consecutive months immediately prior to making the claim. This rule applies equally where the claim is backdated; the claimant must have been living in the UK for three consecutive months
Computing income for tax credits purposes
Computing income for tax credits purposesThis guidance note looks at the how the various components of income are calculated for tax credit awards.Migration of tax credits to universal creditNew claims for tax credits are no longer possible as they have been replaced by the universal credit for all claimants. Existing claimants will continue to receive tax credits until they are migrated to the universal credit system. Migration will take place when a change in circumstances is reported or when a migration notice letter is received. This is expected to be completed in 2024. There is information about migration notice letters on the GOV.UK website.See the Universal credit guidance note.Calculation of household income for tax creditsHousehold income for tax credits purposes is very similar to the taxable income of the claimant or the claimant couple. However, there are some key differences from the normal tax rules in both income and deductions.The statutory income definition is divided into four steps which you will need to work through in order. The income that is taken into account for both a single claim and a joint claim is the total income for the tax year irrespective of whether the claim is for an entire tax year. Where a claim relates to a part year, the income is calculated pro rata when the taper is computed. See the Computing the working tax credit and Computing child tax credit guidance notes for a discussion of how the maximum entitlement is tapered. Step 1 ― calculate
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