Tax credits: working out income
Calculating income for tax credits claims or renewals.
When you claim tax credits you’ll need to give details of your total income on your claim form. You’ll also need to work out your income when you renew your tax credits each year.
Usually, what you’re entitled to is based on your income for the last tax year (6 April one year to 5 April the next).
Your income includes:
- wages as an employee, including any ‘employer benefits’ you might have had
- profit from self-employment
- other income, like interest on savings or pensions
- money from state benefits unless they’re ‘tax free’ benefits
This guide tells you how to work out your wages, self-employment income and other income.
There are 3 steps to working out your total income.
Step 1: work out your gross pay
This is your total wages from all jobs that you had in the last tax year, before any tax and National Insurance deductions. If you’ve had certain employee benefits you’ll need to add these in, as well as any tips or strike pay.
Your employer should have given you a record of your gross pay on a P60, or P45 if you left before the end of the tax year. If you don’t have a P60 or P45, check your final payslip, which should show your total pay to date.
Add up any of the following that apply to you, to get your total gross pay.
|Add up these amounts||Notes|
|Total wages||Don’t take off tax or National Insurance|
|Employee benefits||For example, company car or goods they gave you|
|Tips||Don’t include if they are already in your taxable pay|
|Money you got because your job ended or changed||Only include what you got that was more than £30,000|
|Strike pay from your trade union|
|Money you made from stocks and shares that you got from your employment|
|Payments for any work you did whilst in prison|
|Earnings from outside the UK||In British pounds*|
*To work this out, use the average exchange rate for the last tax year. This will be the average exchange rate for the year to 31 March. You can use HMRC exchange rate tables.
Step 2: what to take off your gross pay
To work out what to take off your gross pay, add up any of the following that apply to you, to get a total amount:
|Add up these amounts||Notes|
|Statutory Maternity, Paternity or Adoption Pay||If you received more than £100 for a week, only include £100 for that week|
|Work expenses which related only to doing your job (don’t include the cost of getting to and from work)||Don’t include if your employer reimbursed them|
|Fees and subscriptions to professional bodies or societies||Don’t include if your employer reimbursed them|
|Employee liabilities and indemnity insurance premiums||Don’t include if your employer reimbursed them|
|Agency fees if you’re an entertainer||Don’t include if your employer reimbursed them|
|The maintenance cost of tools for your job||Only if agreed by your employer and HMRC - you’ll find the allowable amount on your P2 Coding Notice|
|Special clothes that are necessary to do your job - for example a uniform||Only if agreed by your employer and HMRC - you’ll find the allowable amount on your P2 Coding Notice|
|Pension contributions not paid from your salary||Include the gross amount*|
|Donations to charity you made using Gift Aid||Include the gross amount*|
*There’s a working sheet you can use to work out your pension contributions or Gift Aid.
Step 3: what you have left
Take the Step 2 total from the Step 1 total to get your total income. Put this on your tax credits claim form or annual declaration form in the ‘earnings as an employee from all jobs’ box.
When you work out your gross pay as an employee, you need to include the taxable value of certain benefits you received from your employer.
Your employer will give you a P11D or P9D form which will tell you the taxable value of any benefits you received.
Add up any of the following that apply to you, to work out what to include in your gross pay.
|Add up these amounts||Where to find the amount on your P9D or P11D|
|Mileage allowance payments over the tax free approved amount||Section E of your P11D|
|Running costs your employer has paid for||Section E or included in section N in your P11D|
|A company car||Section F of your P11D (box 9)|
|Car fuel||Section F of your P11D (box 10)|
|Expenses payments made to you unless they were business expenses||Section J, M or N of your P11D, or section A (1) of your P9D|
|Goods and assets your employer has given to you, for example gifts of food and drink||Section A of your P11D, or section A (2) of your P9D in the third or fourth boxes|
|Payments made by your employer on your behalf, for example if your employer paid your rent||Section B of your P11D, in the first box numbered 15, or section A (2) of your P9D in the first, second and fifth boxes|
|Vouchers or credit tokens, for example company credit cards - don’t include the cash equivalent of childcare vouchers||Section C of your P11D, or section B of your P9D (add together all the boxes)|
For help calculating the value of your benefits, use the worksheet in the guidance notes that came with your claim form or renewal pack. Or you can call the Tax Credit Helpline.
There are 3 steps to working out your income from self-employment.
Step 1: work out your profit
Your profit is what you gave on your Self Assessment tax return for the last tax year. If you had more than one business, add up all of the separate business profits.
If you haven’t filled in your tax return, you’ll need to estimate your profit.
What else to include
Make sure your profit includes other income or profits your business received, for example rental income from a flat above a shop. Don’t include this as ‘other income’ too.
Include any profit from working outside the UK, in British pounds. To work this out, use the average exchange rate for the last tax year. This will be the average exchange rate for the year to 31 March. Use HMRC exchange rate tables.
You can get help with working out your profit by calling the Self Assessment Helpline.
Step 2: what to take off your profit
To work out what to take off your profit, add up:
- the gross amount of any personal pension payments
- any trading losses from the same business you brought forward from a previous year
- the gross amount of any donations to charity using Gift Aid
There’s a working sheet (PDF, 970KB) you can use to work out your pension contributions, Gift Aid or trading losses.
Step 3: what you have left
Minus the Step 2 total from the Step 1 total, to get your income from self-employment. Put this on your tax credits claim form or annual declaration in the ‘income from self-employment’ box.
If you made a loss, enter 0 in the box.
You may offset any losses that you have made in this year only, against any other household income for this year.
If you’ve just started out and your business had no income in the last tax year, leave ‘income from self-employment’ blank.
As well as what you earn from work, you’ll need to work out the total amount of any other income you’ve had. In most cases, you’ll only need to include what you’ve had that was more than £300.
Income to include over £300
Add up the full amount of the following types of other income, then take off £300.
Interest on savings
Include the amount before tax is taken off. Don’t include interest from tax-exempt investments like ISAs.
Include any UK company dividends you’ve received. Also add in the tax credit - shown on the dividend voucher supplied by the company.
Also include any ‘chargeable event gains’ from a life insurance policy. The amount of the gain will be shown on the certificate issued by your insurer.
- State Pension
- Widow’s Pension
- Widowed Mother’s Allowance
- Widowed Parent’s Allowance
- Industrial Death Benefit
Don’t include the Christmas bonus, winter fuel payment, or war pensions.
Occupational or personal pensions
Include the full amount before any tax was deducted. You can find this on your P60 or other certificates of pension paid.
Also include any annuity payments from a pension scheme.
If your pension includes an extra amount for a work-related illness or injury, call the Tax Credit Helpline.
Include income from property in the UK that you own or rent.
- income from the Rent a Room scheme
- property income included in your self-employed income
If your rental property made a loss, you can use a working sheet (PDF, 970KB) to help you work out what to enter.
Income from trusts, settlements and estates
You can get the figure from the form R185 that the trustees or administrators will have given you. Include the amount before any tax was taken off (add together the ‘net’ amounts and ‘tax paid’ or ‘tax credit’ amounts).
- income from investments and property overseas
- social security payments from abroad
- foreign pensions - include 90% of the full amount
Include the gross amount, before any tax, whether or not it came into the UK.
You should include any foreign income in British pounds. You can take off any banking charge or commission paid when converting foreign currency.
To convert foreign income into British pounds, use the average exchange rate for the last tax year. This will be the average exchange rate for the year to 31 March. You can use HMRC exchange rate tables.
If you need any help, you can contact the Tax Credit Helpline.
Notional income is income that you’re treated as having which you may not in fact have.
|Trust income that under Income Tax rules is treated as the income of another person||For example, investment income of a child where you have provided trust funds of more than £100|
|Income you did not take, so you could get tax credits or more tax credits|
|Income that you were entitled to, but did not apply for||For example, a taxable social security benefit|
|Employment income you could have had||For example, because you worked for free, or for less than the going rate|
|Capital that’s treated as income||For example, if you hold shares in a UK company, and they gave you new shares (a ‘stock dividend’) instead of a cash dividend|
For help working out notional income, you can contact the Tax Credit Helpline.
Income to include in full
You should include the following income amounts in full - don’t deduct £300.
- Adult Dependants’ Grant paid to students with a partner or a dependent adult
- dependants’ grants for students in Scotland
- taxable miscellaneous income, eg copyright royalties paid to you for a book when you are not a professional author
What not to include
- maintenance payments received from a former partner
- tax credits payments
- student loans
- student grants, except the Adult Dependants’ Grant or any dependants’ grant in Scotland
- income your children have had, unless it’s taxable in your or your partner’s name
Working out your total other income
To get the final figure:
- add up all the amounts to include over £300 - add up the full amounts, then take £300 away
- then add in all the amounts to include in full
Enter the final figure on your tax credits claim form or annual declaration in the ‘other income’ box. If you end up with a minus figure, enter 0.
For help working out your other income, use the worksheet in the guidance notes that came with your claim form or renewal pack. Or you can call the Tax Credit Helpline.