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HMRC internal manual

PAYE Manual

HM Revenue & Customs
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PAYE operation: employment and support allowance: background

Employment and Support Allowance (ESA) was introduced as the successor to Incapacity Benefit (IB) - the benefit claimed by people who are unable to work due to incapacity.

ESA consists of 2 elements

  • A contributory element determined by a National Insurance contribution test, which is taxable 
  • An income related element established by an income test, which is not taxable

ESA replaces IB for all people making a new claim from 27 October 2008. However, existing claimants and individuals who retained IB due to linking rules, remained on IB.

From 31 January 2011, Incapacity Benefit linking rules no longer apply and

  • All returning claimants will be treated as new ESA claimants
  • All existing Incapacity Benefit claims will be reassessed

Reassessment of existing Incapacity Benefit claimants will take place between October 2010 and 5 April 2014. See section ‘IB to ESA reassessment’ below.

The remainder of this subject is presented as follows

New ESA claimants

New ESA claimants must undergo an initial assessment phase, which will normally last for 13 weeks. During this assessment phase a lower rate of ESA will be paid, determined by the claimant’s age (aged 16 to 24, or aged 25 and over).

After the assessment phase claimants will be judged as

  • Fit for work and ineligible to claim ESA, in which case they will be transferred to a Jobseeker’s Allowance (JSA) claim


  • Capable of taking part in some form of work related activity (the work related activity group) in which case they will continue to receive a slightly higher rate of ESA but will be expected to seek employment of up to 16 hours per week


  • Not able to take part in any work related activity (support group) for the foreseeable future, in which case they will receive the highest rate of ESA

HMRC is not involved in determining the category or amount of ESA paid to claimant.

IB to ESA reassessment

From October 2010 to 5 April 2014, all individuals currently in receipt of Incapacity Benefit, Severe Disablement Allowance and Income Support paid on the grounds of illness or disability will be reassessed for ESA.

Individuals found to have a limited or no capacity for work will move onto ESA. The weekly rate of ESA benefit paid to the individual will not be less than their previous weekly IB entitlement.

Individuals who are due to begin receiving state pension before 6 April 2014, will not be reassessed, to avoid having to change benefits twice within a short period.

Non-taxable IB

Individuals who originally claimed Invalidity Benefit and were transferred to Incapacity Benefit in April 1995 and individuals receiving Severe Disablement Allowance or Income Support paid on the grounds of illness or disability, are currently exempt from taxation on the benefit they receive.

These cases can be identified from the Benefits Claims Summary screen that will show Sickness Benefit / IVB.

If these individuals are moved on to contribution-based ESA, their benefits will become taxable.

If an individual asks whether their benefit is contribution-based you should direct them to Jobcentre Plus. Also see guidance at PAYE77250 under the heading ‘Queries regarding ESA - standard lines’.

Introductory phase

Form 28 February 2011 to 22 May 2011, new ESA reassessment cases will be maintained clerically by DWP. HMRC will be notified of the new entitlement on form PB3, headed ‘IB (IS) Reassessment Claim’. See the guidance at PAYE77212.

P45(IB) details

Following reassessment, for all cases, allowed and disallowed, an individual’s Incapacity Benefit will cease and P45(IB) details will be issued by DWP

  • Form P45(IB) is issued where we have previously held a primary IB employment
  • Form P45(IB)(O) is issued where the IB amount has previously been coded out
  • For all successful claims, the end date for the IB will be shown as the day before the ESA start date

ESA disallowed

Individuals who are not found to be entitled to ESA may claim JSA, Income Support for other reasons, Pension Credit or they may move off receiving benefit. They will also have the opportunity to appeal against the reassessment decision within a 30 day period.


If an individual wishes to appeal the reassessment decision, pending the outcome of the appeal, the individual will receive the basic amount of ESA. This will be paid at the same rate as the weekly benefit received by new ESA claimants during the first 13 weeks. DWP will use a P45(3)SUBS or a TIS (an electronic version of P46U) to notify HMRC of the start of the benefit.

If the appeal is successful, the individual will receive full entitlement to ESA, which will not be less than their previous weekly IB entitlement. They will also receive arrears of any benefit due.

If the appeal is unsuccessful, the ESA benefit will cease and ESA P45 details issued.

If you receive any enquiries regarding the ESA deduction included in an individual’s tax code, you should follow the guidance at PAYE77250 under the headings ‘Queries regarding ESA - standard lines’ and ‘Queries regarding the amount of ESA coded’.

Note: HMRC is not involved in determining the outcome of any appeal.