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HMRC internal manual

Tax Credits Manual

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HM Revenue & Customs
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Eligibility - income (employed and self-employed): Specific payments excluded from income (Info)

Specific payments and employment related benefits excluded from employment income for tax credit purposes are as follows

Note: None of the other income tax exclusions from employment income apply to tax credits.

  • payment of removal expenses and removal benefits to which Chapter 7, Part 4 of ITEPA 2003 applies. For year 2001-2002, this is under Schedule 11A ICTA 1988.

This is a partial income tax exception (up to the sum of £8,000). Any amounts in excess of £8,000 are income for tax credits purposes. For more information, use the Employment Income Manual para EIM03100.

Note: This exception also applies to the use of non-cash vouchers or credit tokens to acquire the exempt removal benefits.

  • for year 2001-2002 only, payments in respect of expenses (including the reimbursement of expense) that are

    • wholly, exclusively and necessarily incurred in the performance of the duties of the customer’s employment

    or

    • travelling expenses in the performance of the duties of an employment or for necessary attendance at a workplace in the performance of the duties.

This disregard was replaced with a deduction from year 2003-2004 onwards. Follow the guidance in TCM0118040.

  • from year 2003-2004 onwards, the payment or reimbursement of expenses or provision of transport for travel between work and home for disabled employees (falling within s246(4) and s247 ITEPA 2003).

This is the income tax exemption.

  • from year 2003-2004 onwards, the payment or reimbursement of expenses incurred on transport late at night or where car sharing arrangements have failed (falling within s248 ITEPA 2003).

This is the income tax exemption.

  • travel facilities provided for the customer as a member of the Armed Forces for the purposes of going on or returning from leave.

This is identical to the income tax exemption. For more information, use the Employment Income Manual para EIM50100.

  • payment or reimbursement of expenses in connection with the provision for, or use by, the customer as a person holding an office or employment of a car parking space at or near their place of work.

This is identical to the income tax exemption. For more information, use the Employment Income Manual para EIM01030.

  • a benefit or non-cash voucher provided to the customer, or to a member of his family or household regarding sporting and recreational facilities (falling within s261 to s263 ITEPA 2003 or, for year 2001-2002, falling within s197G of ICTA 1988).

This is the income tax exemption. For more information, use the Employment Income Manual para EIM21825.

  • payment of incidental overnight expenses (falling within s240 of ITEPA 2003 or, for year 2001-2002, s200A of ICTA 1988).

This is the income tax exemption. For more information, use the Employment Income Manual para EIM02710.

  • food, drink and mess allowances for the Armed Forces and training allowances payable to members of the reserve forces exempt under s297 or s298 ITEPA 2003 or, for year 2001-2002, s136 ICTA 1988.

This is the same as income tax exemption. For more information, use the Employment Income Manual para EIM50110.

  • reduced value of meal vouchers issued to the customer as an employee (falling within s89 ITEPA 2003 or, for year 2001-2002, falling within ESC A2).

This reduces the total cash equivalent of the benefit of the vouchers by 15 pence for each working day that the vouchers are provided.

This is the income tax exemption. For more information, use the Employment Income Manual para EIM16210.

  • free coal or a cash payment in lieu of free coal received by the customer as a miner (falling within s306 ITEPA 2003 or, for year 2001-2002, falling within ESCA6).

This is the income tax exemption. For more information, use the Employment Income Manual para EIM66690.

  • an award made to the customer as a director or employee by way of a testimonial to mark long service, if and to the extent that s323 ITEPA 2003 provides no income tax liability (for year 2001-2002, this is ESC A22).

This is the income tax exemption. For more information, use the Employment Income Manual para EIM01500.

  • an award made to the customer under a staff suggestion scheme, if the conditions in s321 and s322 ITEPA 2003 are satisfied (for year 2001-2002, ESC A57).

This is the income tax concession. For more information, use the Employment Income Manual para EIM06600.

  • payment of a daily subsistence allowance covered by s304 ITEPA 2003 or, for year 2001-2002, covered by ESC A84.

These are daily subsistence allowances paid by the European Commission to Detached National Experts on Secondment to the Commission.

This is the income tax concession.

  • from year 2003-2004, the payment or reimbursement of expenses in respect of mainland transfers for offshore oil and gas workers (falling within s305 ITEPA 2003).

This is the income tax exemption. For more information, use the Employment Income Manual para EIM34110.

  • from year 2003-2004 onwards, any payments of foreign service allowances paid to Crown Servants working outside the UK (falling within s299 ITEPA 2003).

This is income tax exemption.

  • from year 2003-2004 onwards, the payment or reimbursement to an employee of any sum in connection with work related training or individual learning account training (falling within Part 4, Chapter 4 ITEPA 2003).

This is income tax exemption.

  • from year 2003 / 2004, any non-cash vouchers or tokens used for expenditure on exempt benefits (falling within Part 3 of ITEPA by virtue of any provision of Chapter 6 of Part 4 of ITEPA 2003).

This is where the use of a non-cash voucher or credit card provided by the employer is for something that would have been an exempt benefit if provided directly. For tax credit purposes this includes use

* for provision of transport for travel between work and home for disabled employees 
* for provision of transport late at night or where car sharing arrangements have failed 
* for provision of a car parking space at or near their place of work 
* for provision of sporting and recreational facilities 
* for provision of subsidised meals 
* for travelling and subsistence as a result of public transport being disrupted by strike action 
* where the voucher is a gift from a third party 
* in connection with a taxable car.

This is the income tax exemption. For more information, use the Employment Income Manual, para EIM16100.

  • from year 2003-2004 onwards, the receipt of vouchers and tokens for subsidised meals exempt from income tax under s317 ITEPA 2003.

This is income tax exemption. For more information, use the Employment Income Manual para EIM21672.

  • travelling and subsistence allowances paid to or on behalf of the customer by their employer as a result of public transport being disrupted by strike action (falling within s245 ITEPA 2003 or, for year 2001-2002, falling within Extra Statutory Concession A58).

This is the income tax exemption. For more information, use the Employment Income Manual para EIM10100.

  • gifts of goods or a voucher or token to obtain goods received from third parties and satisfying the conditions of s270 (for non-cash vouchers and credit tokens) and s324 (for goods) ITEPA 2003 or, for year 2001-2002, satisfying the conditions of Extra Statutory Concession A70.

This is the income tax exemption. For more information, use the Employment Income Manual para EIM01450.

  • from year 2003-2004 onwards, any payment or reimbursement of expenses incurred in connection with the transfer of an asset by reason of an employment and exempt from income tax under s326(2) ITEPA 2003.

This can happen, for example, when an employee who is being relocated, transfers their house to the employer (or someone acting on his behalf) and the employer pays the transaction costs.

This is income tax exemption.

  • from 2003-2004 onwards, payments and benefits in connection with a car made available for private use, if exempt from income tax under s239 (1), (2) or (4) ITEPA 2003.

Apart from the provision of car fuel or a chauffeur, the legislation limits the taxable benefit arising from the availability of a car for private use to the cash equivalent. So the payment or reimbursement of costs connected with the car (for example, insurance, car washing or car telephone) or the cash equivalent of the benefit where such costs are met directly by the employer or by use of a company credit card are disregarded.

This is the tax exemption. For more information, use the Employment Income Manual para EIM23005 and EIM23007.

  • a cash voucher, non-cash voucher or credit token to the extent that it is used by the recipient to obtain relevant childcare. Relevant childcare is care that, had they paid for it, instead of using the voucher or token, they would have been incurring relevant child care charges for the purpose of the child care element of Working Tax Credit.

This is different to the income tax exemption.

  • from year 2003-2004 onwards, payment of the Job Grant (by DWP).

Before October 2003, this is a single payment of £100 made to people aged 25 or over starting or returning to work for 16 hours or more weekly or entering a New Deal Scheme, including a subsidised job or waged activity. From October 2003, it will increase to £250 for couples with dependent children in the same circumstances.

  • from year 2003-2004 onwards, payment under the Employment Retention and Advancement Scheme (ERAS) by DWP.

The ERAS is a pilot scheme to encourage continuous employment. The scheme runs in six areas

* Gateshead and Tyneside
* Derbyshire
* Manchester
* north east London
* south east Wales
* Clyde coast and Renfrewshire.

Participation is open to lone parents joining the New Deal for Lone Parents, lone parents in receipt of WTC who work less than 30 hours weekly and people participating in the New Deal 25 +. Under the scheme, a retention bonus of £400 is paid for each 17-week period of continuous employment and participants may qualify for a maximum of six retention bonuses, a total of £2,400. In addition, a training bonus is available at a rate of £8 for each hour of training, up to a maximum of £1,000.

  • a payment made by DWP under Section 2 of the Employment Act.
  • by way of In-Work Credit, Better Off In-Work Credit, Job Grant or Return to Work Credit.
  • under the Employment Retention and Advancement Scheme (ERAS) or the Working Neighbourhoods Pilot.
  • under the City Strategy Pathfinder Pilots.
  • by way of an In-Work Emergency Discretion Fund Payment under arrangements made by the Secretary of State.
  • by way of an Up-front Childcare Fund payment under arrangements made by the Secretary of State.
  • a payment made by the Department for Employment and Learning in Northern Ireland under Section 1 of the Employment and Training Act (Northern Ireland) 1950 by way of Return to Work Credit.
  • any In-Work Emergency Fund payment under arrangements made by the Department of Economic Development under Section 1 of the Employment and Training Act (Northern Ireland) 1950.
  • for year 2003-2004 onwards, payment or reimbursement of reasonable additional household expenses incurred by an employee who works from home, within the meaning of s316A of ITEPA 2003.

Typically this will include the additional costs of heating and lighting the work area or the metered cost of increased water use. There might also be increased charges for internet access, home contents insurance or business phone calls. Where working at home leads to a liability for business rates, the additional cost incurred can also be included.

The additional household costs must be reasonable and must be incurred in carrying out the duties. This excludes costs that would be the same whether or not the employee works at home - for example, mortgage interest, rent, council tax or water rates. It also excludes expenses that put the employee into a position to work at home - for example, building alterations or the cost of furniture or office equipment.

Note: This disregard only relates to the employer paying or reimbursing these costs. Unreimbursed costs would have to satisfy the tighter rule of being wholly, exclusively and necessarily incurred in the performance of the work in order to be deducted.

This is the income tax exemption. For more information, use Employment Income Manual para EIM01472.

  • the payment or reimbursement of retraining course expenses within the meaning of s311 of ITEPA 2003.

These are retraining costs met or reimbursed by the employer in the run up to, or within one year of, redundancy.

Note: This disregard only relates to the employer paying or reimbursing these costs. Unreimbursed costs would have to satisfy the tighter rule of being wholly, exclusively and necessarily incurred in the performance of the work in order to be deducted.

This is the income tax exemption. For more information, use Employment Income Manual para EIM05010.

  • for the year 2004-2005 onwards, the provision of computer equipment by virtue of s320 ITEPA 2003.

This is allowable when an employer places a computer or peripheral equipment at the disposal of a director or employee for personal use. Employers are being encouraged to participate in the government’s Home Computer Initiative. Under the scheme, employees receive the benefit of a loaned computer and in return give up some of their salary.

Use of a loaned asset wouldn’t normally be a benefit included as employment income for tax credits.

If, under the arrangements, the employee has the right to give back the computer after 18 months and return to their full salary, had it not been for this new disregard there would be earnings to include for this benefit under the ‘money’s worth’ principle as described in the Earnings chapter (as having the use of the computer would have some financial value to the customer).

This is the income tax exemption. For more information, use Employment Income Manual para EIM21700.

Note: The partial computer exemption in s320 of ITEPA was abolished with effect from 06/04/2006. Some employees who entered into an arrangement of this type before this date continue to benefit from this partial income tax and tax credits exemption (up to £500 yearly) as they typically lasted around three years. There will be very limited numbers of these cases in future.