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HMRC internal manual

Tax Credits Manual

Eligibility - income (calculation): Income calculation (Info)

To calculate the income of the customer or, in the case of a joint claim, the joint income of the customers for tax credit purposes, carry out the following steps.

Step 1

Calculate and add together the income of the customer and partner from the following sources

  • pension income
  • investment income
  • property income
  • foreign income
  • notional income.

For more guidance about these sources of income, use TCM0120000.

Note: If the calculated result of this step is £300 or less, the income is treated as nil. If the calculated result is more than £300, only the excess is taken into account.

For example: Mrs S has annual income from shares (dividends) of £127. This is below £300. The income is treated as nil. In a different household, Mr P has annual income from property of £700, an annual pension of £800 and annual income from shares of £230. The total income is £1,730. Disregard £300. £1,430 is taken into account as income.

Step 2

Calculate and add together the customer’s income and partner’s income from the following sources

  • student income
  • miscellaneous income
  • employment income. For more guidance about employment income, use TCM0118080
  • Social Security income.

For more guidance about the latter source of income, use TCM0120000.

Step 3

Add together the amounts resulting from the calculations in steps 1 and 2.

Step 4

Calculate the trading income (if any) from the customer’s or partner’s work as a self-employed earner.

For more guidance about self-employment, use TCM0118180.

The earnings from self employment should then be added to the sum of the income at step 3.

Note: If the earnings from self-employment carried out on a commercial basis during the year have resulted in a net loss, the amount of that loss should be deducted from the total income at step 3. Follow the guidance in TCM0118180.

For example: Mr S’s annual income from employment is £14,300, he has income from investment income of £370, he also has self-employed work which has resulted in a net loss of £1,380 for the year. His income for tax credits purposes is calculated £14,300 plus £70 (£370 minus £300) equalling £14,370, minus £1,380 equals £12,990.

Step 5

The income of the customer and partner is the amount left after adding together income from all sources and deducting the appropriate amounts.

Note: The above income should be calculated in accordance with the key general rules and after applying the general disregards. For more information, use TCM0116100 and TCM0116080.

There is an Action Guide for this subject, select TCM0116040 to access it