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HMRC internal manual

Tax Credits Manual

From
HM Revenue & Customs
Updated
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Extra information - miscellaneous information: Deductions from income

Guidance

The income may be lower on the customer’s claim form than on the National Insurance and Pay As You Earn System (NPS) or Self Assessment (SA) system due to the following reasons.

Statutory Maternity Pay (SMP) / Statutory Adoption Pay (SAP)

SMP/SAP can be paid for up to 39 weeks. The customer can deduct up to £100 weekly for each week they receive SMP/SAP from employment income. There may be a difference of up to £3900 between the figures on NPS and the claim form.

Check whether a child has been born or if the customer has become responsible for a child or young person during Previous Year (PY).

Statutory Paternity Pay (SPP) / Statutory Shared Parental Pay (ShPP)

SPP can be paid for up to two weeks. The customer can deduct up to £100 weekly for each week they receive SPP from employment income. There may be a difference of up to £200 between the figures on NPS and the claim form. ShPP can be paid for a period of up to 37 weeks when their wife, partner or civil partner does not receive SMP/SAP or Maternity Allowance due to returning to work. The customer can deduct up to £100 weekly for each week they receive ShPP. Check whether a child has been born during PY.

Contributions to a registered pension scheme

The customer can deduct the full gross amount of all contributions they have made into a pension scheme registered with HMRC from their income. No deductions should be made for contributions to an occupational pension scheme made through an employer.

Example: If a customer paid £1,000 into a pension scheme in PY they can deduct the grossed up amount including the tax relief due - that is, £1,000 multiplied by 100 divided by 80 equals £1,250.

Donations to charity by Gift Aid

The customer can deduct the full gross amount of all donations they have made to charity by Gift Aid. No deductions should be made for donations made by Give As You Earn (GAYE) made through an employer. Check pension contributions for how the grossed up amount is worked out.

Trading (self-employed) losses

In the first year a loss occurs, the loss can be deducted from all other sources of income the customer has (including the income of their partner if they have one). In subsequent years, if the amount of the loss could not be offset because the customer had no other income, the loss can be carried forward and deducted from the profits of the same business only.

Check the customer’s SA record (or in a joint claim both the customer and their partner’s SA record) for previous years to determine if a loss has been declared, which may indicate why the figures are different.

Benefits in Kind

Some taxable benefits in kind are not taken into account as income for tax credits purposes. These are van benefits, private medical insurance paid by the employer, share-related income, the value of childcare vouchers over £55.

The customer can deduct these from their employment income, which may account for a difference between the figures on NPS and the claim form.

Expenses

The customer can claim back the cost of some expenses for income tax purposes but these deductions will not be shown on NPS. The customer can deduct the cost of these expenses from their income for tax credits purposes.

These are fees to professional bodies, agency fees and indemnity insurance, flat-rate expenses agreed by their employer and HMRC to maintain or renew tools or special clothes they need for their job, and work expenses they have paid out and their employer has not paid them back for.

These expenses must be wholly, exclusively and necessarily incurred in the performance of their duties.