CHAPTER 5Income: persons who are not pensioners
Calculation of income on a weekly basis
20.—(1) Subject to paragraph 23 (disregard of changes in tax, etc), the income of an applicant is to be calculated on a weekly basis—
(a)by estimating the amount which is likely to be the applicant’s average weekly income in accordance with this Part;
(b)by adding to that amount the weekly income calculated under paragraph 33 (tariff income); and
(c)by then deducting any relevant child care charges to which paragraph 21 (treatment of child care charges) applies from any earnings which form part of the average weekly income or, in a case where the conditions in sub-paragraph (2) are met, from those earnings plus whichever credit specified in paragraph (b) of that sub-paragraph is appropriate, up to a maximum deduction in respect of the applicant’s family of whichever of the sums specified in sub-paragraph (3) applies in the applicant’s case.
(2) The conditions of this paragraph are that—
(a)the applicant’s earnings which form part of the applicant’s average weekly income are less than the lower of either the applicant’s relevant child care charges or whichever of the deductions specified in paragraph (3) otherwise applies in the applicant’s case; and
(b)that applicant or, if the applicant is a member of a couple either the applicant or the applicant’s partner, is in receipt of either working tax credit or child tax credit.
(3) The maximum deduction to which paragraph (1)(c) above refers is to be—
(a)where the applicant’s family includes only one child in respect of whom relevant child care charges are paid, £175 per week;
(b)where the applicant’s family includes more than one child in respect of whom relevant child care charges are paid, £300 per week.
Treatment of child care charges
21.—(1) This paragraph applies where an applicant (within the meaning of this paragraph) is incurring relevant child care charges and—
(a)is a lone parent and is engaged in remunerative work;
(b)is a member of a couple both of whom are engaged in remunerative work; or
(c)is a member of a couple where one member is engaged in remunerative work and the other—
(i)is incapacitated;
(ii)is an in-patient in hospital; or
(iii)is in prison (whether serving a custodial sentence or remanded in custody awaiting trial or sentence).
(2) For the purposes of sub-paragraph (1) and subject to sub-paragraph (4), a person to whom sub-paragraph (3) applies must be treated as engaged in remunerative work for a period not exceeding 28 weeks during which the person—
(a)is paid statutory sick pay;
(b)is paid short-term incapacity benefit at the lower rate under sections 30A to 30E of the SSCBA;
(c)is paid an employment and support allowance;
(d)is paid income support on the grounds of incapacity for work under regulation 4ZA of, and paragraph 7 or 14 of Schedule 1B to, the Income Support (General) Regulations 1987(1); or
(e)is credited with earnings on the grounds of incapacity for work or limited capability for work under regulation 8B of the Social Security (Credits) Regulations 1975(2).
(3) This sub-paragraph applies to a person who was engaged in remunerative work immediately before—
(a)the first day of the period in respect of which the person was first paid statutory sick pay, short-term incapacity benefit, an employment and support allowance or income support on the grounds of incapacity for work; or
(b)the first day of the period in respect of which earnings are credited,
as the case may be.
(4) In a case to which sub-paragraph (2)(d) or (e) applies, the period of 28 weeks begins on the day on which the person is first paid income support or on the first day of the period in respect of which earnings are credited, as the case may be.
(5) Relevant child care charges are those charges for care to which sub-paragraphs (6) and (7) apply, and are to be calculated on a weekly basis in accordance with sub-paragraph (10).
(6) The charges are paid by the applicant for care which is provided—
(a)in the case of any child of the applicant’s family who is not disabled, in respect of the period beginning on that child’s date of birth and ending on the day preceding the first Monday in September following that child’s fifteenth birthday; or
(b)in the case of any child of the applicant’s family who is disabled, in respect of the period beginning on that child’s date of birth and ending on the day preceding the first Monday in September following that child’s sixteenth birthday.
(7) The charges are paid for care which is provided by one or more of the care providers listed in sub-paragraph (8) and are not paid—
(a)in respect of the child’s compulsory education;
(b)by an applicant to a partner or by a partner to an applicant in respect of any child for whom either or any of them is responsible in accordance with regulation 7 (circumstances in which a person is treated as responsible or not responsible for another); or
(c)in respect of care provided by a relative of the child wholly or mainly in the child’s home.
(8) The care to which sub-paragraph (7) refers may be provided—
(a)out of school hours, by a school on school premises or by a local authority—
(i)for children who are not disabled in respect of the period beginning on their eighth birthday and ending on the day preceding the first Monday in September following their fifteenth birthday; or
(ii)for children who are disabled in respect of the period beginning on their eighth birthday and ending on the day preceding the first Monday in September following their sixteenth birthday; or
(b)by a child care provider approved in accordance with the Tax Credit (New Category of Child Care Provider) Regulations 1999(3); or
(c)by persons registered under Part 2 of the Children and Families (Wales) Measure 2010(4); or
(d)by a person who is excepted from registration under Part 2 of the Children and Families (Wales) Measure 2010 because the child care that person provides is in a school or establishment referred to in article 11, 12 or 14 of the Child Minding and Day Care Exceptions (Wales) Order 2010(5); or
(e)by—
(i)persons registered under section 59(1) of the Public Services Reform (Scotland) Act 2010(6); or
(ii)local authorities registered under section 83(1) of that Act,
where the care provided is child minding or day care of children within the meaning of that Act; or
(f)by a person prescribed in regulations made pursuant to section 12(4) of the Tax Credits Act 2002; or
(g)by a person who is registered under Chapter 2 or 3 of Part 3 of the Childcare Act 2006; or
(h)by any of the schools mentioned in section 34(2) of the Childcare Act 2006(7) in circumstances where the requirement to register under Chapter 2 of Part 3 of that Act does not apply by virtue of section 34(2) of that Act; or
(i)by any of the schools mentioned in section 53(2) of the Childcare Act 2006 in circumstances where the requirement to register under Chapter 3 of Part 3 of that Act does not apply by virtue of section 53(2) of that Act; or
(j)by any of the establishments mentioned in section 18(5) of the Childcare Act 2006 in circumstances where the care is not included in the meaning of “childcare” for the purposes of Part 1 and Part 3 of that Act by virtue of section 18(5) of that Act; or
(k)by a foster parent or kinship carer under the Fostering Services (England) Regulations 2011(8), the Fostering Services (Wales) Regulations 2003(9) or the Looked After Children (Scotland) Regulations 2009(10) in relation to a child other than one whom the foster parent is fostering or kinship carer is looking after; or
(l)by a domiciliary care worker under the Domiciliary Care Agencies (Wales) Regulations 2004(11); or
(m)by a person who is not a relative of the child wholly or mainly in the child’s home.
(9) In sub-paragraphs (6) and (8)(a), “the first Monday in September” (“y dydd Llun cyntaf ym Medi”) means the Monday which first occurs in the month of September in any year.
(10) Relevant child care charges must be estimated over such period, not exceeding a year, as is appropriate in order that the average weekly charge may be estimated accurately having regard to information as to the amount of that charge provided by the child minder or person providing the care.
(11) For the purposes of sub-paragraph (1)(c) the other member of a couple is incapacitated where—
(a)the applicant’s applicable amount includes a disability premium on account of the other member’s incapacity or the support component or the work-related activity component on account of the other member’s having limited capability for work;
(b)the applicant’s applicable amount would include a disability premium on account of the other member’s incapacity but for that other member being treated as capable of work by virtue of a determination made in accordance with regulations made under section 171E of the SSCBA;
(c)the applicant’s applicable amount would include the support component or the work-related activity component on account of the other member having limited capability for work but for that other member being treated as not having limited capability for work by virtue of a determination made in accordance with the Employment and Support Allowance Regulations 2008;
(d)the applicant is, or is treated as, incapable of work and has been so incapable, or has been so treated as incapable, of work in accordance with the provisions of, and regulations made under, Part 12A of the SSCBA (incapacity for work) for a continuous period of not less than 196 days; and for this purpose any two or more separate periods separated by a break of not more than 56 days must be treated as one continuous period;
(e)the applicant has, or is treated as having, limited capability for work and has had, or been treated as having, limited capability for work in accordance with the Employment and Support Allowance Regulations 2008 for a continuous period of not less than 196 days and for this purpose any two or more separate periods separated by a break of not more than 84 days must be treated as one continuous period;
(f)there is payable in respect of the other member one or more of the following pensions or allowances—
(i)long-term incapacity benefit or short-term incapacity benefit at the higher rate under Schedule 4 to the SSCBA;
(ii)attendance allowance under section 64 of the SSCBA;
(iii)severe disablement allowance under section 68 of the SSCBA;
(iv)disability living allowance under section 71 of the SSCBA;
(v)personal independence payment under Part 4 of the Welfare Reform Act 2012;
(vi)an AFIP;
(vii)increase of disablement pension under section 104 of the SSCBA;
(viii)a pension increase paid as part of a war disablement pension or under an industrial injuries scheme which is analogous to an allowance or increase of disablement pension under sub-paragraph (ii), (iv), (v) or (vii) above;
(ix)main phase employment and support allowance;
(g)a pension or allowance to which sub-paragraph (vi) or (vii) of paragraph (f) refers was payable on account of the other member’s incapacity but has ceased to be payable in consequence of that other member becoming a patient, which in this paragraph means a person (other than a person who is serving a sentence of imprisonment or detention in a youth custody institution) who is regarded as receiving free in-patient treatment within the meaning of regulation 2(4) and (5) of the Social Security (Hospital In-Patients) Regulations 2005(12);
(h)an attendance allowance under section 64 of the SSCBA or disability living allowance under section 71 of that Act would be payable to that person but for—
(i)a suspension of benefit in accordance with regulations under section 113(2) of the SSCBA; or
(ii)an abatement as a consequence of hospitalisation;
(i)the daily living component of personal independence payment would be payable to that person but for a suspension of benefit in accordance with regulations under section 86 of the Welfare Reform Act 2012 (hospital in-patients);
(j)an AFIP would be payable to that person but for any suspension of payment in accordance with any terms of the armed and reserve forces compensation scheme which allow for a suspension because a person is undergoing medical treatment in a hospital or similar institution;
(k)paragraph (f), (g), (h) or (i) would apply to the other member if the legislative provisions referred to in those paragraphs were provisions under any corresponding enactment having effect in Northern Ireland; or
(l)the other member has an invalid carriage or other vehicle provided to the other member by the Secretary of State under paragraph 9 of Schedule 1 to the National Health Service Act 2006 or under section 46 of the National Health Service (Scotland) Act 1978(13), or provided by the Department of Health, Social Services and Public Safety in Northern Ireland under article 30(1) of the Health and Personal Social Services (Northern Ireland) Order 1972, or provided by the Welsh Ministers under section 5 of, and Schedule 1 to the National Health Service (Wales) Act 2006.
(12) For the purposes of sub-paragraph (11), once sub-paragraph (11)(d) applies to the applicant, if the applicant then ceases, for a period of 56 days or less, to be incapable, or to be treated as incapable, of work, that sub-paragraph is, on the applicant again becoming so incapable, or so treated as incapable, of work at the end of that period, to immediately thereafter apply to the applicant for so long as the applicant remains incapable, or is treated as remaining incapable, of work.
(13) For the purposes of sub-paragraph (11), once sub-paragraph (11)(e) applies to the applicant, if the applicant then ceases, for a period of 84 days or less, to have, or to be treated as having, limited capability for work, that sub-paragraph is, on the applicant again having, or being treated as having limited capability for work at the end of that period, immediately thereafter to apply to the applicant for so long as the applicant has, or is treated as having, limited capability for work.
(14) For the purposes of sub-paragraphs (6) and (8)(a), a person is disabled if that person is a person—
(a)to whom an attendance allowance or the care component of disability allowance is payable or would be payable but for—
(i)a suspension of benefit in accordance with regulations under section 113(2) of the SSCBA; or
(ii)an abatement as a consequence of hospitalisation;
(b)to whom the daily living component of personal independence payment is payable or would be payable but for a suspension of benefit in accordance with regulations under section 86 of the Welfare Reform Act 2012 (hospital in-patients);
(c)who is registered as blind in a register compiled under section 29 of the National Assistance Act 1948 (welfare services) or, in Scotland, has been certified as blind and in consequence that person is registered as blind in a register maintained by or on behalf of a council constituted under section 2 of the Local Government (Scotland) Act 1994(14);
(d)who ceased to be registered as blind in such a register within the period beginning 28 weeks before the first Monday in September following that person’s fifteenth birthday and ending on the day preceding that person’s sixteenth birthday; or
(e)to whom AFIP is payable.
(15) For the purposes of sub-paragraph (1) a person on maternity leave, paternity leave or adoption leave is to be treated as if engaged in remunerative work for the period specified in sub-paragraph (16) (“the relevant period”) provided that—
(a)in the week before the period of maternity leave, paternity leave or adoption leave began the person was in remunerative work;
(b)the person is incurring relevant child care charges within the meaning of sub-paragraph (5); and
(c)the person is entitled to either statutory maternity pay under section 164 of the SSCBA, ordinary statutory paternity pay by virtue of section 171ZA or 171ZB of that Act, additional statutory paternity pay by virtue of section 171ZEA or 171ZEB of that Act, statutory adoption pay by virtue of section 171ZL of that Act, maternity allowance under section 35 of that Act or qualifying support.
(16) For the purposes of sub-paragraph (15) the relevant period begins on the day on which the person’s maternity leave, paternity leave or adoption leave commences and ends on—
(a)the date that leave ends;
(b)if no child care element of working tax credit is in payment on the date that entitlement to maternity allowance, qualifying support (if relevant), statutory maternity pay, ordinary or additional statutory paternity pay or statutory adoption pay ends, the date that entitlement ends; or
(c)if a child care element of working tax credit is in payment on the date that entitlement to maternity allowance or qualifying support, statutory maternity pay, ordinary or additional statutory paternity pay or statutory adoption pay ends, the date that entitlement to that award of the child care element of the working tax credit ends,
whichever occurs first.
(17) In sub-paragraphs (15) and (16)—
(a)“qualifying support” (“cymhorthdal cymwys”) means income support to which that person is entitled by virtue of paragraph 14B of Schedule 1B to the Income Support (General) Regulations 1987; and
(b)“child care element” (“elfen gofal plant”) of working tax credit means the element of working tax credit prescribed under section 12 of the Tax Credits Act 2002 (child care element).
(18) In this paragraph “applicant” (“ceisydd”) does not include an applicant—
(a)who has, or
(b)who (jointly with a partner) has,
an award of universal credit.
Calculations of average weekly income from tax credits
22.—(1) This paragraph applies where an applicant receives a tax credit.
(2) Where this paragraph applies, the period over which a tax credit is to be taken into account must be the period set out in sub-paragraph (3).
(3) Where the instalment in respect of which payment of a tax credit is made is—
(a)a daily instalment, the period is 1 day, being the day in respect of which the instalment is paid;
(b)a weekly instalment, the period is 7 days, ending on the day on which the instalment is due to be paid;
(c)a two weekly instalment, the period is 14 days, commencing 6 days before the day on which the instalment is due to be paid;
(d)a four weekly instalment, the period is 28 days, ending on the day on which the instalment is due to be paid.
(4) For the purposes of this paragraph “tax credit” (“credyd treth”) means child tax credit or working tax credit.
Disregard of changes in tax, contributions etc
23. In calculating the applicant’s income an authority may disregard any legislative change—
(a)in the basic or other rates of income tax;
(b)in the amount of any personal tax relief;
(c)in the rates of social security contributions payable under the SSCBA or in the lower earnings limit or upper earnings limit for Class 1 contributions under that Act, the lower or upper limits applicable to Class 4 contributions under that Act or the amount specified in section 11(4) of that Act (small earnings exception in relation to Class 2 contributions);
(d)in the amount of tax payable as a result of an increase in the weekly rate of Category A, B, C or D retirement pension or any addition thereto or any graduated pension payable under the SSCBA;
(e)in the maximum rate of child tax credit or working tax credit,
for a period not exceeding 30 reduction weeks beginning with the reduction week immediately following the date from which the change is effective.
Calculation of net profit of self-employed earners
24.—(1) For the purposes of paragraph 11 (average weekly earnings of self-employed earners) the earnings of an applicant to be taken into account must be—
(a)in the case of a self-employed earner who is engaged in employment on that person’s own account, the net profit derived from that employment;
(b)in the case of a self-employed earner who is a pensioner whose employment is carried on in partnership, that person’s share of the net profit derived from that employment, less—
(i)an amount in respect of income tax and of social security contributions payable under the SSCBA calculated in accordance with paragraph 25 (calculation of deduction of tax and contributions of self-employed earners); and
(ii)one-half of the amount calculated in accordance with sub-paragraph (11) in respect of any qualifying premium;
(c)in the case of a self-employed earner who is not a pensioner whose employment is carried on in partnership or is that of a share fisherman within the meaning of the Social Security (Mariners’ Benefits) Regulations 1975(15), that person’s share of the net profit derived from that employment, less—
(i)an amount in respect of income tax and of social security contributions payable under the SSCBA calculated in accordance with paragraph 25 (calculation of deduction of tax and contributions for self-employed earners); and
(ii)one-half of the amount calculated in accordance with sub-paragraph (11) in respect of any qualifying premium.
(2) There must be disregarded from the net profit of an applicant who is not a pensioner, any sum, where applicable, specified in paragraphs 1 to 16 of Schedule 8 (sums disregarded in the calculation of earnings).
(3) For the purposes of sub-paragraph (1)(a) the net profit of the employment must, except where sub-paragraph (9) applies, be calculated by taking into account the earnings of the employment over the assessment period less—
(a)subject to sub-paragraphs (5) to (8), any expenses wholly and exclusively incurred in that period for the purposes of that employment;
(b)an amount in respect of—
(i)income tax; and
(ii)social security contributions payable under the SSCBA,
calculated in accordance with paragraph 25 (calculation of deduction of tax and contributions for self-employed earners); and
(c)one-half of the amount calculated in accordance with sub-paragraph (11) in respect of any qualifying premium.
(4) For the purposes of sub-paragraph (1)(b) the net profit of the employment is to be calculated by taking into account the earnings of the employment over the assessment period less, subject to sub-paragraphs (5) to (8), any expenses wholly and exclusively incurred in that period for the purposes of the employment.
(5) Subject to sub-paragraph (6), no deduction is to be made under paragraph (3)(a) or (4), in respect of—
(a)any capital expenditure;
(b)the depreciation of any capital asset;
(c)any sum employed or intended to be employed in the setting up or expansion of the employment;
(d)any loss incurred before the beginning of the assessment period;
(e)the repayment of capital on any loan taken out for the purposes of the employment;
(f)any expenses incurred in providing business entertainment; and
(g)in the case of an applicant who is not a pensioner, any debts, except bad debts proved to be such, but this paragraph does not apply to any expenses incurred in the recovery of a debt.
(6) A deduction is to be made under sub-paragraph (3)(a) or (4) in respect of the repayment of capital on any loan used for—
(a)the replacement in the course of business of equipment or machinery; or
(b)the repair of an existing business asset except to the extent that any sum is payable under an insurance policy for its repair.
(7) The authority must refuse to make a deduction in respect of any expenses under sub-paragraph (3)(a) or (4) where it is not satisfied given the nature and the amount of the expense that it has been reasonably incurred.
(8) For the avoidance of doubt—
(a)a deduction must not be made under sub-paragraph (3)(a) or (4) in respect of any sum unless it has been expended for the purposes of the business;
(b)a deduction must be made thereunder in respect of—
(i)the excess of any value added tax paid over value added tax received in the assessment period;
(ii)any income expended in the repair of an existing business asset except to the extent that any sum is payable under an insurance policy for its repair;
(iii)any payment of interest on a loan taken out for the purposes of the employment.
(9) Where an applicant is engaged in employment as a child minder the net profit of the employment is to be one-third of the earnings of that employment, less—
(a)an amount in respect of—
(i)income tax; and
(ii)social security contributions payable under the SSCBA,
calculated in accordance with paragraph 25 (calculation of deduction of tax and contributions for self-employed earners); and
(b)one-half of the amount calculated in accordance with sub-paragraph (11) in respect of any qualifying premium.
(10) For the avoidance of doubt where an applicant is engaged in employment as a self-employed earner and the applicant is also engaged in one or more other employments as a self-employed or employed earner any loss incurred in any one of the applicant’s employments must not be offset against the applicant’s earnings in any other of the applicant’s employments.
(11) The amount in respect of any qualifying premium is to be calculated by multiplying the daily amount of the qualifying premium by the number equal to the number of days in the assessment period; and for the purposes of this paragraph the daily amount of the qualifying premium must be determined—
(a)where the qualifying premium is payable monthly, by multiplying the amount of the qualifying premium by 12 and dividing the product by 365;
(b)in any other case, by dividing the amount of the qualifying premium by the number equal to the number of days in the period to which the qualifying premium relates.
(12) In this paragraph, “qualifying premium” (“premiwm cymwys”) means any premium which is payable periodically in respect of a personal pension scheme and is so payable on or after the date of application.
Calculation of deduction of tax and contributions of self-employed earners
25.—(1) The amount to be deducted in respect of income tax under paragraph 24(1)(b)(i), (3)(b)(i) or (9) (a)(i) (calculation of net profit of self-employed earners) must be calculated—
(a)on the basis of the amount of chargeable income, and
(b)as if that income were assessable to income tax at the basic rate of tax applicable to the assessment period less only the personal relief to which the applicant is entitled under section 35 to 37 of the Income Tax Act 2007(16) (personal allowances) as is appropriate to the applicant’s circumstances.
(2) But, if the assessment period is less than a year, the earnings to which the basic rate of tax is to be applied and the amount of the personal reliefs deductible under this paragraph must be calculated on a pro rata basis.
(3) The amount to be deducted in respect of social security contributions under paragraph 24(1)(b)(i), (3)(b)(ii) or (9)(a)(ii) is the total of—
(a)the amount of Class 2 contributions payable under section 11(1) or, as the case may be, 11(3) of the SSCBA at the rate applicable to the assessment period except where the applicant’s chargeable income is less than the amount specified in section 11(4) of that Act (small earnings exception) for the tax year applicable to the assessment period; but if the assessment period is less than a year, the amount specified for that tax year must be reduced pro rata; and
(b)the amount of Class 4 contributions (if any) which would be payable under section 15 of the SSCBA (Class 4 contributions recoverable under the Income Tax Acts) at the percentage rate applicable to the assessment period on so much of the chargeable income as exceeds the lower limit but does not exceed the upper limit of profits and gains applicable for the tax year applicable to the assessment period; but if the assessment period is less than a year, those limits must be reduced pro rata.
(4) In this paragraph “chargeable income” (“incwm trethadwy”) means—
(a)except where paragraph (b) applies, the earnings derived from the employment less any expenses deducted under sub-paragraph (3)(a) or, as the case may be, (5) of paragraph 24;
(b)in the case of employment as a child minder, one-third of the earnings of that employment.
2007 c.3; the heading and subsection (1) of section 35 were amended by section 4 of the Finance Act 2012 (c.14) (“2012 Act”); subsections (2) and (4) were inserted by section 4 of the Finance Act 2009 (c.10). In section 36, the heading and subsection (2) were amended by, subsection (1) substituted by, and subsection (2A) inserted by section 4 of the 2012 Act; subsection (2) has also been amended by article 3 of S.I. 2012/3047, and section 4 of the Finance Act 2009. In section 37, the heading and subsection (2) were amended by, subsection (1) substituted by, and subsection (2A) inserted by section 4 of the 2012 Act; subsection (2) has also been amended by article 3 of S.I. 2012/3047, and section 4 of the Finance Act 2009.