Policy paper

Income Tax: tax relief for compensation payments from the Scottish Infected Blood Support Scheme

Published 14 March 2017

Who is likely to be affected

Individuals infected with HIV or Hepatitis C through NHS treatment with contaminated blood and their widows, widowers and surviving civil partners who receive compensation payments through the Scottish Infected Blood Support Scheme.

General description of the measure

Following a review of the existing schemes providing financial support to those infected with HIV and Hepatitis C through NHS treatment with contaminated blood, the Scottish government announced reforms for Scotland in March 2016.

The announcement included the introduction of increased payments to those infected, new payments to widows, widowers and surviving civil partners of those infected and a new scheme administrator to make these payments to Scottish recipients. This new scheme, the Scottish Infected Blood Support Scheme, replaces the 5 existing schemes which will continue to make payments across the rest of the UK.

This measure ensures that the payments from the new Scottish scheme are exempt from Income Tax in the same way that payments from the existing UK wide schemes are exempt.

Policy objective

Regulations are already in place to ensure that compensation payments made by the existing schemes are exempt from Income Tax. When a press release was issued by the Department for Health in July 2016 announcing reforms to payments in England, it confirmed that those payments would continue to be exempt from Income Tax.

This measure ensures that the treatment of payments made by the new Scottish scheme is consistent with the treatment of payments previously made by the existing schemes and those continuing to be made across the rest of the UK.

Background to the measure

Since 1988 successive governments have set up various schemes to provide financial support to infected individuals. The longstanding position has been that such compensation payments should be exempt from tax and, in the past, where necessary, regulations have been made to provide an exemption.

The Department for Health has been consulting on improvements to the schemes for those infected in England and in line with reforms announced in July 2016 they will be increasing the payments made, with similar improvements being introduced in Wales and Northern Ireland. The July announcement confirmed that these payments would continue to be exempt from tax. As these will initially be paid by the existing schemes, the current regulations will continue to exempt the payments from tax.

The Scottish government carried out their own review and announced in March last year that they would be introducing increased payments and these would be made by a new scheme, the Scottish Infected Blood Support Scheme. The existing tax regulations don’t cover this new scheme, so under existing law, periodical payments made by the new Scottish scheme would be subject to Income Tax. This measure ensures that the periodical payments made by the new Scottish scheme are exempt from tax.

Detailed proposal

Operative date

The regulations are expected to come into force in April 2017 and the measure will apply to payments made by the new Scottish scheme from the date the regulations come into force.

Current law

Section 683 of the Income Tax (Trading and Other Income) Act 2005 charges Income Tax on annual payments not otherwise charged to tax. Section 731 exempts from tax certain periodical payments of personal injury damages for those persons detailed in section 733 with section 734 extending this to include payments from trusts, but this doesn’t cover the payments to be made by the new Scottish scheme. In the absence of a specific exemption, the periodical payments made by the Scottish Infected Blood Support Scheme would therefore be taxable.

Proposed revisions

A statutory instrument will be introduced in April 2017. This will extend the application of sections 731, 733 and 734 of the Income Tax (Trading and Other Income) Act 2005 to periodical payments by the Scottish Infected Blood Support Scheme for individuals infected with HIV or Hepatitis C through NHS treatment with contaminated blood.

Summary of impacts

Exchequer impact (£m)

2017 to 2018	2018 to 2019	2019 to 2020	2020 to 2021	2021 to 2022
negligible	negligible	negligible	negligible	negligible

This measure is expected to have a negligible impact on the Exchequer.

Economic impact

This measure is not expected to have any significant macroeconomic impacts.

Impact on individuals, households and families

The Scottish government expect this measure to affect less than 200 people.

The measure is not expected to impact on family formation, stability or breakdown.

Equalities impacts

As those with HIV are deemed to be within the disability equality group, this measure will have a positive impact for the small number of those infected and their widows, widowers and surviving civil partners. Apart from these it is not anticipated that there will be any impacts for those in any other equality group.

Impact on business including civil society organisations

This measure is expected to have no impact on businesses and civil society organisations.

Operational impact (£m) (HM Revenue and Customs (HMRC) or other)

No operational impact on HMRC.

Other impacts

Other impacts have been considered and none have been identified.

Monitoring and evaluation

The policy will be kept under review through communication with stakeholders affected by the measure.

Further advice

If you have any questions about this change, please contact Jenny McDougall on Telephone: 03000 593627 or email: jenny.mcdougall@hmrc.gsi.gov.uk.

Declaration

Jane Ellison MP, Financial Secretary to the Treasury has read this tax information and impact note and is satisfied that, given the available evidence, it represents a reasonable view of the likely costs, benefits and impacts of the measure.