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

CHAPTER 1 General

Calculation of income of claimant

3.—(1) The manner in which income of a claimant or, in the case of a joint claim, the aggregate income of the claimants, is to be calculated for a tax year for the purposes of Part 1 of the Act is as follows.

Step One

Calculate and then add together—

(a) the pension income (as defined in regulation 5(1)),

(b) the investment income (as defined in regulation 10),

(c) the property income (as defined in regulation 11),

(d) the foreign income (as defined in regulation 12) and

(e) the notional income (as defined in regulation 13)

of the claimant, or, in the case of a joint claim, of the claimants.

If the result of this step is £300 or less, it is treated as nil.

If the result of this step is more than £300, only the excess is taken into account in the following steps.

Step Two

Calculate and then add together—

(a) the employment income (as defined in regulation 4),

(b) the social security income (as defined in regulation 7),

(c) the student income (as defined in regulation 8) and

(d) the miscellaneous income (as defined in regulation 18)

of the claimant, or in the case of a joint claim, of the claimants.

Step Three

Add together the results of Steps One and Two.

Step Four

Calculate the trading income (as defined in regulation 6) of the claimant, or in the case of a joint claim, of the claimants.

Add the result of this step to that produced by Step Three, unless there has been a trading loss in the year.

If there has been a trading loss in the year, substract the amount of that loss from the result of Step Three.

(2) Subject to the qualifications in the following paragraphs of this regulation, and the provisions of Part 3, the result of Step Four in paragraph (1) is the income of the claimant, or, in the case of a joint claim, of the claimants, for the purposes of the Act.

(3) Income which—

(a) arises in a territory outside the United Kingdom and

(b) is, for the time being, unremittable for the purposes of section 584 of the Taxes Act(1),

is disregarded in calculating the income of the claimant or, in the case of a joint claim, of the claimants.

(4) Paragraph (5) applies in the case of a claimant who is—

(a) resident but neither ordinarily resident nor domiciled in the United Kingdom, or

(b) resident and ordinarily resident but not domiciled in the United Kingdom.

(5) In the case of a person to whom this paragraph applies—

(a) any income arising outside the United Kingdom is to be taken into account, subject to any specific provision of these Regulations, regardless of—

(i) the domicile or residence of the claimant; or

(ii) the provision of any Order in Council under section 788 of the Taxes Act (double taxation agreements)(2); and

(b) references to a sum being taxable are to be construed as including a sum which would be taxable if he were resident, ordinarily resident and domiciled in the United Kingdom.

(6) In the case of a claimant who would be chargeable to income tax but for some special exemption or immunity from income tax, income shall be calculated on the basis of the amounts which would be so chargeable but for that exemption or immunity.

(7) In calculating income under this Part there shall be deducted the amount of—

(a) any banking charge or commission payable in converting to sterling a payment of income which is made in a currency other than sterling;

(b) any qualifying donation (within the meaning of section 25 of the Finance Act 1990 (donations to charity by individuals)(3)), made by the claimant or, in the case of a joint claim, by either or both of the claimants; and

(c) any contribution made by the claimant, or in the case of a joint claim, by either or both of the claimants to—

(i) a retirement benefits scheme approved under Chapter 1 of Part 14 of the Taxes Act, including a pilots benefit fund approved under section 607 of that Act(4) and a relevant statutory scheme within the meaning of section 611A of that Act(5);

(ii) a retirement annuity contract approved under Chapter 3 of Part 14 of that Act; or

(iii) a personal pension scheme, approved under Chapter 4 of that Part 14 of that Act.

(1)

Relevant amendments to section 584 have been made by section 134 of, and paragraph 33 of Schedule 20 to the Finance Act 1996 (c. 8).

(2)

Section 788(5) was amended by paragraphs 1 and 2 of Schedule 30 to the Finance Act 2000 (c. 17).

(3)

Section 25 has been partly repealed by section 71(5) and (6) of the Finance Act 1991 (c. 31) and amended by subsections (1) to (7) and (10) of section 39 of the Finance Act 2000.

(4)

Section 607 was amended by section 104(2) and (3) of the Finance Act 1994 (c. 9).

(5)

Section 611A was inserted by paragraph 15 of Schedule 5 to the Finance Act 1989 (c. 26) and amended by paragraph 5 of Schedule 5 to the Finance Act 1999 (c. 16).