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HMRC internal manual

Tax Credits Manual

HM Revenue & Customs
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Eligibility - income (other than earnings): Income - notional (Info)

Regulation 14(1) of the Tax Credits (Definition and Calculation of Income) Regulations 2002 provides that if an amount is treated for any purpose as the customer’s income under any provision mentioned in paragraph (2), he is to be treated as having that amount of income.

The provisions mentioned in paragraph (1) are

  • the following provisions of ITTOIA 2005

    • Sections 277 to 283 (treatment of premiums and so on as rent)
    • Chapter 5, Part 4 (stock dividends treated as income)
    • Chapter 6, Part 4 (taxation of borrower when loan to participators in a close company released and so on)
    • Sections 624 to 628 (income arising under settlement where settlor retains an interest)
    • Sections 629 to 632 (payments to unmarried minor children of settlor)
    • Section 633 (sums paid to settlor otherwise than as income) or 641 (capital sums paid by body connected with settlement)
    • Section 654 (limited interests in residue of estate in administration) or 652 (absolute interests in residue of estate in administration)
  • the following provisions of ICTA 1988

    • Section 714 (transfers of securities: treatment of deemed sums and reliefs) or 716 (transfer of unrealised interest)
    • Section 730 (transfers of income arising from securities)
    • Section 730A (treatment of price differential on sale and repurchase of securities)
    • Section 739 (prevention of avoidance of income tax)
    • Section 740 (liability of non-transferors)
    • Section 761 (charge to income tax of offshore income gain)


    • Section 776 (transactions in land: taxation of chargeable gains)
  • Section 84 and Schedule 13 to the Finance Act 2004 (charge to income tax by reference to enjoyment of property previously owned)

The remainder of this subject is presented as follows

Deprivation of income

Deprivation occurs if a customer gives up or transfers to another person an income, which was received or due to be received. For example: a customer may, by a deed of gift, transfer entitlement of an occupational pension or trust income to someone else.

Has deprivation occurred?

The customer must prove the income is no longer received, because the customer is responsible for establishing entitlement.

If the customer fails to produce satisfactory evidence that an income has been disposed of, you may decide that the customer still receives the actual income.

(This content has been withheld because of exemptions in the Freedom of Information Act 2000) (This content has been withheld because of exemptions in the Freedom of Information Act 2000) Legislative mailbox 

Purpose of disposal of the income

The customer may have more than one reason for disposing of income, only one of which is to obtain tax credits or more tax credits. Securing or increasing entitlement to tax credits may not be a customer’s main motive but it must be a significant one.

Timing of the disposal of income

The timing of the disposal of income is an important consideration. A claim made soon after the disposal of income may indicate that gaining or increasing entitlement to tax credit was a significant motive.

If the deprivation took place well before a claim was made, it is less likely that the action will have been for the purpose of gaining entitlement.

Income available on claim

If income would become available to a person on a claim you should treat it as belonging to that person, even if the person has not received the income. This doesn’t apply to income payable under

  • a trust derived from a payment made because of a personal injury


  • a personal pension scheme or retirement annuity contract
  • an award of damages for personal injury which is administered by the court
  • a rehabilitation allowance made under specified legislation, Section 2 of the Employment Act 1988

or by way of a

  • Category A retirement pension or Category B retirement pension
  • graduated retirement benefit
  • shared additional pension

payment of which has been deferred

Customers providing services to other persons for less than full earnings

The customer is treated as having an amount of employment or trading income that is reasonable for that employment, if they provide a service for another person and

  • the other person makes no payment of earnings or pays less than for a comparable employment, trading or business in the area


  • the Board are satisfied that the other person has the means to pay for, or to pay more for the service.

Note: This doesn’t apply to

* to customers who are volunteers or are engaged to provide a service to a charitable or voluntary organisation and the Board is satisfied that it’s reasonable for the customer to provide the service free of charge


* where the service is provided by the customer’s participation in an employment or training programme.