The Tax Credits (Definition and Calculation of Income) Regulations 2002

Explanatory Note

(This note is not part of the Regulations)

These Regulations define what is income for the purposes of working tax credit and child tax credit under the Tax Credits Act 2002 (c. 21).

Regulation 1 provides for the commencement and citation of these Regulations, and regulation 2 for the interpretation of certain terms used in them.

Regulation 3 sets out the steps to be taken to calculate the income of a claimant, or in the case of a joint claim, of the claimants for an award of either of the tax credits payable under Part 1 of the Tax Credits Act 2002 (c. 21).

Regulations 4 to 12 set out the extent to which a claimant’s employment income, pension income, trading income, social security income, student income, investment income, property income and foreign income are to be taken into account for the purposes of regulation 3.

Regulations 13 to 17 contain a series of provisions which treat a claimant as having income which he does not have.

Regulation 14 provides that if a person is treated as having income for income tax purposes under specified provisions of the Income and Corporation Taxes Act 1988 (c. 1) or under paragraph 1 of Schedule 13 to the Finance Act 1996 (c. 8).

Regulation 15 provides that a claimant depriving himself of income in order to secure entitlement to or increasing the amount of a tax credit is to be treated as having it.

Regulation 16 provides that a claimant to whom income would become available upon the making of an application for it is to be treated as having that income. It does not apply if the income in question arises under a trust derived from a payment made in consequence of a personal injury, a personal pension scheme or retirement annuity contract, comprises compensation for personal injury which is being administered by a court, or a rehabilitation allowance under section 2 of the Employment and Training Act 1973 (c. 50).

Regulation 17(1) treats a claimant who provides a service for another, either without payment or at less than the rate which would be reasonable for comparable employment in the area in question, where the other has the means to pay or to pay more for the service, as having such amount of employment or trading income as would be reasonable for the employment of the claimant to provide the service. The paragraph does not apply where the recipient of the service is a charity or voluntary organisation. Nor does it apply if the service is provided in connection with participation in an employment or training programme in Great Britain under regulation 19(1)(q) of the Jobseekers Allowance Regulations 1996 (S.I. 1996/207) unless it is provided in connection with the Intensive Activity period specified in regulation 75(1)(a)(iv) of those Regulations, or in corresponding circumstances in Northern Ireland.

Regulation 18 provides that income which is not otherwise dealt with in the Regulations, but which is chargeable to income tax under Case VI of Schedule D for the purposes of income tax, is to be taken into account in calculating the claimant’s income under regulation 3.

Regulation 19 provides a series of miscellaneous disregards in the calculation of income under regulation 3.

A regulatory impact assessment in respect of the Tax Credits Act 2002 has been prepared and placed in the Library of each House of Parliament. A copy may be found on the Inland Revenue website (www.inlandrevenue.gov.uk).