It is crucial that you know which State Benefits are taxable and which are non-taxable so that you can correctly declare your overall ‘taxable income’ to the tax office.
If you add non-taxable benefits to your total, then you will end up paying more tax than is required. Benefits that are classified as non-taxable should not be included on any tax returns or other HMRC documents that ask for ‘taxable income’.
State Benefits that are not taxable:
- Attendance Allowance
- Child Benefit – this one is based on your income, so you may have to pay tax on it if you earn more than the given threshold. (HMRC have a ‘Child Benefit Tax Calculator’ on their website to help you work out if this is a taxable benefit for your income bracket.)
- Child Tax Credit
- Disability Living Allowance
- Employment and Support Allowance – this is also income related
- Free TV license for over-75s
- Guardian’s Allowance
- Housing Benefit
- Income Support
- Industrial Injuries Benefit
- Lump-sum bereavement payments
- Maternity Allowance
- Pension Credit
- Severe Disablement Allowance
- Universal Credit
- War Widow’s Pension
- Winter Fuel Payments and Christmas Bonus
- Working Tax Credit
- Young Person’s Bridging Allowance
You do have to pay income tax on the following State Benefits:
- Bereavement Allowance
- Carer’s Allowance
- Employment and Support Allowance (contribution based)
- Incapacity Benefit (from the 29th week you receive it)
- Jobseeker’s Allowance
- Pensions paid by the Industrial Death Benefit Scheme
- State Pension
- Widowed Parent’s Allowance
- Widow’s pension
Benefits and your tax return
If you fill in a Self Assessment tax return don’t forget to include any taxable benefits. Some benefits like Job Seekers Allowance have to be included in your tax return because they are classed as a taxable benefit.
If you don’t include taxable benefits your SA tax return will be wrong and in many cases you won’t pay enough income tax.
Tony Shanks