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HMRC internal manual

Tax Credits Technical Manual

Income: Employment income rules: Employment income for tax credit purposes

The Tax Credits (Definition and Calculation of Income) Regulations 2002, Reg. 4(1)(a)

Includes:

  • Any earnings from a claimant’s office or employment in the tax year (see TCTM04102)
  • Specific payments and benefits in kind (not already counted as earnings). TCTM04106 summarises those that have been included together with appropriate Employment Income Manual references. Note that, although based on income tax law, not all of the additional rules for income chargeable to tax as employment income have been included in the tax credit employment income rules

Excludes:

  • Specific payments and benefits in kind regardless of whether they fall within either of the above rules. TCTM04110 summarises these together with appropriate EIM references. Note that, although based on income tax law, not all of the general exemptions and reliefs from inclusion as income chargeable to tax as employment income have been included in the tax credit income rules
  • The amount of specific, allowable deductions. TCTM04228 summarises these together with appropriate EIM references.
  • Deemed employment payments under section 50 ITEPA. Although deemed employment payments for IR35 customers are treated as earnings from employment for tax purposes, we do not include them as employment income for tax credits. In these circumstances, we take into account the actual salary paid as employment income together with any dividend as investment income (see TCTM04500)

Employment income is not restricted to that received in the UK and should also include any payments made to the claimant or claimants in any part of the world (converted into £ sterling).

 

Note: With effect from 6 April 2017 the way in which many salary sacrifice and benefit in kind schemes are taxed will change, which means that some tax credit claimants will see an increase in their taxable income.

For the purposes of tax credits, where one of these schemes is in operation the taxable income figure should be used.