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HMRC internal manual

Employment Income Manual

Social security benefits: incapacity benefit: summary

From 27 October 2008 Employment and Support Allowance (see EIM76185) replaced Incapacity Benefit and Income Support paid on incapacity grounds for anyone starting a claim. However, existing recipients of Incapacity Benefit or Income Support will initially continue to receive their existing benefits, so long as they continue to satisfy the entitlement conditions.

Part 10 Chapters 3 and 4 ITEPA 2003Incapacity benefit (IB) is a social security benefit payable to those who are incapable of work because of illness or disability. IB is taxable except:

  • for the short term benefit paid at a lower rate for the first 28 weeks of incapacity
  • where the recipient is over pensionable age and receives a higher rate of IB than the basic short term rate for the first 28 weeks of incapacity
  • if DWP makes ex-gratia top-up payments to people over pensionable age
  • where IB is payable to a person who was entitled to invalidity benefit prior to 13 April 1995 (when incapacity benefit replaced invalidity benefit) provided the benefit is in respect of the same period of incapacity. (However, if the person was entitled to Sickness Benefit prior to 13 April 1995 then the IB became taxable when that person started to receive the short-term higher rate of IB.) The DWP may ignore short periods of work when determining a period of incapacity, but if a period of work is not ignored, so a recipient who had a period of incapacity before 13 April 1995 starts a new period of incapacity after that date, the IB will be taxable after 6 months under the normal rules.As they know the details of the claim, the DWP is responsible for determining whether IB is taxable and notifying the Revenue when a person starts to receive taxable benefit. If there is any doubt whether IB is taxable, the person receiving the IB should be asked to seek clarification from theDWP.

Rate at which IB payableFor the first 28 weeks of incapacity, benefit is payable at a short term lower rate. Thereafter it is paid at a short term higher rate for another 24 weeks. The recipient then moves on to long term benefit paid at a higher rate still. These basic rates may be increased in certain circumstances, for instance the short term higher rate is increased in the case of the terminally ill.

Sometimes taxable Statutory Sick Pay (SSP) is paid by an employer in the first 28 weeks of incapacity (see EIM76350). The days for which SSP is payable count as part of the first 28 weeks. The recipient will then move on to the short term higher rate even though they may not have had short term IB at the lower rate for the first 28 weeks.

Age related additions to long term IB are payable to individuals aged under 45 years old. These additions are taxable.

With regard to the relationship between IB and jobseeker’s allowance see EIM76225.