Chapter H3: Earned income - employed earningsContents
|H3003:||Meaning of claimant|
|H3004:||Meaning of earned income|
|H3011:||Deciding entitlement before the end of the first assessment period|
|H3013:||Failure to report earnings|
|H3021:||Types of earnings|
|H3026:||Payments to agency workers|
|H3030:||Payments to workers under arrangements made by intermediaries|
|H3036:||Managed service companies|
|H3058:||Certain payments treated as earnings|
|H3059:||Benefits treated as earnings|
|H3070:||Statutory sick pay|
|H3071:||Statutory maternity pay|
|H3072:||Ordinary statutory paternity pay|
|H3073:||Additional statutory paternity pay|
|H3075:||Statutory adoption pay|
|H3080:||Amounts excluded from being employed earnings|
|H3081:||Benefits in kind|
|H3103:||Disposal of shares for more than the market value|
Amounts exempt from taxation and are excluded from being earnings for UC......
|H3110:||Mileage allowances and passenger payments|
|H3111:||Transport, travel and subsistence|
|H3112:||Education and work-related training|
|H3115:||Non-cash vouchers and credit tokens|
|H3116:||Removal benefits and expenses|
|H3117:||Payments to certain kinds of employees|
|H3119:||Termination of employment payments|
|H3120:||Other miscellaneous payments|
|H3130:||Payments disregarded from employed earnings|
|H3140:||Expenses allowed as a deduction by HMRC|
|H3161:||Meaning of service user|
|H3170:||Calculating the amount of earnings|
|H3201:||Deprivation of earned income|
|H3203:||Meaning of deprive|
|H3207:||Questions for consideration|
|H3220:||Notional earnings and the performance of a service|
|H3226:||Meaning of voluntary organisation|
|H3227:||Meaning of person|
|H3228:||Performance of a service|
|H3229:||Details of the service performed|
|H3230:||When earnings are not to be treated as paid|
|H3240:||Is it reasonable to provide services free of charge?|
|H3241:||Service users and notional earnings|
|H3242:||Employment and training programme|
|H3246:||Fine payment work - England and Wales|
|H3248:||Community payback orders - Scotland|
|H3250:||Calculation of gross notional earnings|
|H3255:||Payments in kind|
|H3256:||Are earnings to be treated as paid|
|H3257:||Reasonable rates of pay|
|H3259:||Can the person afford to pay?|
|H3270:||Amount to be taken into account|
|H3272:||Deduction for notional income tax|
|H3273:||Deduction for notional NI contribution|
|H3277:||Onus of proof|
Chapter H3: Earned income - employed earnings
H3001 IntroductionIn UC employed earnings fall within the general meaning of earned income. Self-
employed earnings also fall within the meaning of earned income. Guidance on self-
employed earnings is in ADM Chapter H4. Unless otherwise stated, the guidance in
this chapter applies to claimants whose earnings are reported via RTI and those
claimants, whether in RTI or not, who self-report their employed earnings.
H3002ADM Chapter E2 provides guidance on how earned income affects an award of UC.
H3003 Meaning of claimantClaimant means (1) either
1. a single claimant for UC or
2. each of joint claimants for UC.
1 WR Act 12, s 40
H3004 Meaning of earned incomeEarned income means (1)
1. the remuneration or profits derived from
1.1 employment under a contract of service or in an office (including
elective office) or
1.2 a trade, profession or vocation or
1.3 any other paid work or
2. any income treated as earned income for the purposes of UC.
Note: Paid work in 1.3 means 2 work done for payment or in expectation of payment.
It does not include work performed for a charitable or voluntary organisation or as a
volunteer where the only payment received in any of those cases is in respect of
1 UC Regs, reg 52; 2 reg 2
H3005The words "derived from" mean having their origins in (1). Payments for past and
present employment should be treated as earnings unless specifically excluded. For
the purposes of UC, RTI will provide up to three months historical data of earnings
received before the date of claim. This historical data should not be treated as
1 R(SB) 21/86
H3006Employment under a contract of service includes employees who work for a wage or
salary. In most cases the existence of such a contract - which may be written, verbal
or implied - will be clear.
H3007The phrase "in an office" includes
1. directors of limited companies
3. LA councillors
6. Welsh Assembly members and
7. sub-postmasters and mistresses.
Note 1: ADM Chapter H4 for guidance on the treatment of earnings in cases where,
in relation to a company, a person stands in a position analogous to a sole owner or
2: For 3. LA councillors' allowances are sometimes called "expenses". Unless
the payment meets the criteria in H3140 - H3144, it is taken into account as
Example 1Cecille is a director of a limited company called "Office Kleanerz". She is one of a
number of directors who run the company. Cecille's earnings from the company in
her role as one of the directors are earned income.
Example 2Sam is the elected Mayor of the town where he lives. In this role, Sam receives an
allowance for attending council meetings and performing other tasks in his role as
Mayor. Sam's receipts are earned income.
H3008ADM Chapter H4 provides guidance on earned income from self-employment and
covers earnings derived from a trade, profession or vocation.
H3009The general principles of earned income
H3010 Actual amountsCalculating a person's earned income for UC in respect of an assessment period
should be based on the actual amounts received in that period (1). Any exceptions to
this rule are provided in this guidance.
1 UC Regs, reg 54(1)
Example 1Alice is in receipt of UC. She works at a school as a classroom assistant. Her pay for
the month of May was £350. She is in dispute with her employer because she thinks
that she should have been paid more due to some extra work that she agreed to do.
For the purposes of UC, Alice's earned income is based on the actual amount
received in May: £350.
Example 2Ryan is in receipt of UC. He works as a receptionist at a hotel. His pay for the month
of May was £350. Ryan thinks that his employer has overpaid him because he
worked fewer shifts in May than normal. For the purposes of UC, Ryan's earned
income is based on the actual amount received in May: £350.
H3011 Deciding entitlement before the end of the first assessment periodWhere
1. the DM is determining whether the claimant is entitled to UC on income
2. that determination is before the end of the first assessment period for that
claim to UC
then the amount of earnings used to determine whether the financial conditions for
UC are met may be based on an estimate of the amount received or to be received (1).
1 UC Regs, reg 54(2)(a)
ExampleRoy has claimed UC and works for a supermarket. The DM is determining whether
or not Roy will be entitled to UC but has not got the actual information regarding
Roy's earnings because Roy has not yet been paid for this particular month. The DM
is informed by Roy that he expects to be paid £260 per month. This figure looks
reasonable with regard to the number of hours that Roy works. The DM uses this
estimate of Roy's earnings to decide whether or not Roy will be entitled to UC.
H3013 Failure to report earningsWhere
1. the claimant has failed to report their earned income in relation to an
assessment period and
2. the DM makes a determination as to the amount of earned income in that
then the amount of earnings for that assessment period may be based on an
estimate of the amount received or to be received (1).
1 UC Regs, reg 54(2)(b)
ExampleGeorgia works as a catering assistant. She normally reports earned income for £320
for each assessment period. In October, despite working, she fails to report her
earnings. The DM decides to use £320 as an estimate of the amount that Georgia
will have received. This is based on what she normally receives.
H3020 Employed earningsIncome from employment
1. under a contract of service or
2. in an office (including elective office)
is known as employed earnings (1).
1 UC Regs, reg 55(1)
Example 1Ross is a cricket coach. He coaches children of all ages at various locations and has
an employment contract with a company specialising in coaching sports run by his
friend. The money that Ross earns under the terms of that contract is employed
Example 2Chris is a civil servant and works in an administrative post for a government
department. The money that Chris earns from this job is employed earnings.
Example 3Graham has a market stall buying and selling CDs and DVDs. He works for himself.
Graham's income from the market stall is not employed earnings (ADM Chapter H4
provides guidance on S/E earnings).
H3021 Types of earningsEmployed
earnings (1) in relation to an employment includes any
2. wages or
Note: In tax legislation these earnings are known as "general earnings"2.
1 UC Regs, reg 55(2); 2 Income Tax (Earnings and Pensions) Act 2003, s 7(3)
H3022Employed earnings also include certain payments which HMRC treat as earnings (1).
These are payments to
1. agency workers (2) and
2. workers under arrangements made by intermediaries (3) and
3. workers by a managed service company (4).
1 Income Tax (Earnings and Pensions) Act 2003, s 7(3)(b); 2 Part 2, Chapter 7;
3 Part 2, Chapter 8; 4 Part 2, Chapter 9
H3023Ordinarily, it will be straightforward as to when a claimant is in receipt of employed
earnings. Where a claimant's income is subject to PAYE and is paid via their
employer's payroll, the RTI feed from HMRC will recognise those earnings. The
claimant's award of UC will then be adjusted to take them into account.
H3024There may be cases where it is less clear as to whether the claimant is in receipt of
employed earnings. The general rule is that any amount which HMRC recognises as
being "general earnings" is also earnings for the purposes of UC.
H3025Even though a claimant may regard themselves as being S/E, if the earnings fall
within the meaning of employed earnings then they have to be taken into account as
such. The earnings information may not be provided through RTI so the claimant will
need to self report their earnings.
H3026 Payments to agency workersIn some situations a worker provides services to an "employer" through a third party
in such a way that, technically, the worker is not an employee of either the
"employer" or the third party. The third party will often be an employment agency but
this can apply to any worker whose income derives from a contract with any third
party for their services (1).
1 Income Tax (Earnings and Pensions) Act 2003, s 44
H3027The services provided by the worker are, for income tax purposes, treated as if they
were the duties of an employment held by the worker. The remuneration received is
treated as earnings and is therefore chargeable to tax as employment income (1). For
UC purposes these payments have to be treated as the claimant's earnings (2).
1 Income Tax (Earnings and Pensions) Act 2003, s 45; 2 UC Regs, reg 55(2)
H3028ADM Chapter H4 for guidance on the treatment of earnings in cases where, in
relation to a company, a person stands in a position analogous to a sole owner or
H3030 Payments to workers under arrangements made by intermediariesArrangements made by intermediaries are where a worker personally performs, or is
under an obligation personally to perform, services for the purposes of a business
carried on by another person ("the client"). However, the services are provided not
under a contract directly between the worker and the client but under arrangements
involving a third party or intermediary (1).
1 Income Tax (Earnings and Pensions) Act 2003, s 49
H3031This may arise in cases where if the services were provided under a contract directly
between the client and the worker, the worker could be regarded for income tax
purposes as an employee of the client. The remuneration received either directly or
indirectly by the worker from the third party is regarded as earnings (1). For UC
purposes these payments have to be treated as the claimant's earnings (2).
1 Income Tax (Earnings and Pensions) Act 2003, s 50; 2 UC Regs, reg 55(2)
H3036 Managed service companiesA managed service company is a form of intermediary company through which
workers provide their services to clients. All payments received by individuals
providing their services through managed service companies are subject to tax as
earnings from employment (1).
1 Income Tax (Earnings and Pensions) Act 2003, s 61D
H3037For UC purposes, the income received by the worker has to be treated as earnings (1).
1 UC Regs, reg 55(2)
H3058 Certain payments treated as earningsPayments made by an employer to a person in respect of
1. an absence due to sickness or disability (for example, employer's sick pay)
2. tax where a deduction is not possible
3. a director's earnings but the tax due has not been deducted
4. contributions to a non-approved personal pension arrangement (it is for
HMRC to grant approval to a pension scheme)
5. restrictive undertakings (for example, where an employee agrees not to work
for a competitor or agrees to confidentiality)
fall to be treated as earnings (1).
Note: For 3. ADM Chapter H4 provides guidance on the treatment of earnings in
cases where, in relation to a company, a person stands in a position analogous to a
sole owner or partner.
1 UC Regs, reg 55(2); Income Tax (Earnings and Pensions) Act 2003, Part 3, Chapter 12
H3059 Benefits treated as earningsPayments which have to be treated as employed earnings are
1. SSP (1)
2. SMP (2)
3. ordinary statutory paternity pay (3)
4. additional statutory paternity pay (4)
5. statutory adoption pay (5).
1 UC Regs, reg 55(4)(a); 2 reg 55(4)(b); 3 reg 55(4)(c); 4 reg 55(4)(d); 5 reg 55(4)(e)
H3070 Statutory sick paySSP is payable by employers to employees as part of, or instead of, normal wages
for up to 28 weeks in any period of sickness. The DM should take any payment of
SSP (1) into account as earnings.
1 UC regs, reg 55(4)(a)
H3071 Statutory maternity paySMP is payable by employers to female employees as part of, or instead of, normal
earnings when they have given up work to have a baby. The DM should take any
payment of SMP (1) into account as earnings.
1 UC Regs, reg 55(4)(b)
H3072 Ordinary statutory paternity payOrdinary statutory paternity pay has to be taken into account as earnings (1). Ordinary
paternity leave is a period of absence from work on leave following the birth or
adoption of a child under relevant legislation (2). It is available to employed parents who
1. have or expect to have parental responsibility for a new child and
2. are the
2.1 biological father of the child or
2.2 mother's husband or partner or
2.3 child's adopter or
2.4 husband or partner of the adopter and
3. have completed at least 26 weeks continuous service with their employer up
to and including the 15th week before the baby is due and
4. have told their employer of their intention to take leave by the end of the 15th
week before the expected week of the child's birth.
1 UC Regs, reg 55(4)(c); 2 ER Act 1996, s 80A & 80B
H3073 Additional statutory paternity payAdditional paternity leave is a period of absence from work on leave following the
birth or adoption of a child under relevant legislation (1). The period of absence cannot
exceed 26 weeks.
1 ER Act 1996, s 80AA & 80BB
H3074Additional statutory paternity pay is paid if a person
1. takes additional paternity leave or
2. is not working, for the purposes of caring for their child during their partner's
SMP, MA or statutory adoption pay period.
Additional statutory pay has to be taken into account as earnings (1).
1 UC Regs, reg 55(4)(d)
H3075 Statutory adoption payEmployees who adopt a child under the age of 18 have the right to 26 weeks
adoption leave. Statutory adoption pay is payable to adopters during their ordinary
adoption leave where they have average weekly earnings at least equal to the LEL.
The DM should take any payment of statutory adoption pay (1) into account as
1 UC Regs, reg 55(4)(e)
H3080 Amounts excluded from being employed earningsGenerally, employed earnings include any amounts that HMRC regard as general
earnings but certain amounts are excluded. These amounts are certain amounts that
HMRC treat as earnings and certain amounts that are exempt from income tax (1).
1 UC Regs, reg 55(2)(a) & (b)
H3081 Benefits in kindEmployed earnings will not initially include certain amounts which HMRC treat as
earnings and are known as benefits in kind (1). These are
1. certain expenses payments
2. cash vouchers and credit tokens
3. living accommodation provided to an employee or a member of their family or household
4. cars, vans and related benefits
5. employment-related loans
6. notional loans in respect of the acquisition of shares
7. disposals of shares for more than the market value
8. employment-related benefits.
H3082- H3107 describe these amounts.
1 UC Regs, reg 55(2)(a); Income Tax (Earnings and Pensions) Act 2003, Part 3, Chapters 2 to 11
H3082 Taxable expenses These are expenses paid by an employer to the employee in respect of expenses
incurred by reason of the employment (1). For example, a mileage allowance paid to
an employee who has used their own car for business.
1 Income Tax (Earnings and Pensions) Act 2003, s 70
H3083 Cash vouchersA cash voucher means a voucher, stamp or similar document capable of being
exchanged for a sum of money which is
1. greater than
2. equal to or
3. not substantially less than
the expense incurred by the person at whose cost the voucher, stamp or similar
document is provided (1).
1 Income Tax (Earnings and Pensions) Act 2003, s 75
H3084 Non-cash vouchersA non-cash voucher means a
1. voucher, stamp or similar document or token which is capable of being
exchanged for money, goods or services or
2. transport voucher or
3. cheque voucher,
but does not include a cash voucher (1).
1 Income Tax (Earnings and Pensions) Act 2003, s 84
H3085 Credit tokensA credit-token is something that merely has to be produced in order to obtain goods
and services without immediate payment (1). These are largely credit cards made
available for obtaining money, goods and services for private use.
1 Income Tax (Earnings and Pensions) Act 2003, s 92
H3087 Living accommodationLiving accommodation means (1) accommodation provided for
1. an employee or
2. a member of an employee's family or household
by reason of the employment.
1 Income Tax (Earnings and Pensions) Act 2003, s 97(1)
H3088However, it does not include accommodation where the
1. employer is an individual and
2. provision of the accommodation is made in the normal course of the
employer's domestic, family or personal relationships (1).
1 Income Tax (Earnings and Pensions) Act 2003, s 97(2)
H3089 VehiclesIt can be a benefit in kind where a car or a van is
1. made available (without any transfer of the property in it) to an employee or a
member of the employee's family or household and
2. so made available by reason of the employment and
3. available for the employee's or member's private use (1).
1 Income Tax (Earnings and Pensions) Act 2003, s 114
H3100 LoansThese are loans or other forms of credit known as employment-related loans and
which are made to an employee or a relative of an employee (1). The types of
arrangement covered are
1. a loan made by the employee's employer
2. a loan made by a company or partnership over which the employee's
employer had control
3. a loan made by a company or partnership by which the employer (being a
company or partnership) was controlled.
4. a loan made by a company or partnership which was controlled by a person
by whom the employer (being a company or partnership) was controlled.
5. a loan made by a person having a material interest in
5.1 a close company which was the employer, had control over the
employer or was controlled by the employer or
5.2 a company or partnership controlling that close company.
1 Income Tax (Earnings and Pensions) Act 2003, s 174
H3101 Notional loansNotional loans in respect of the acquisition of shares are where
1. shares in a company (either the employer or another company) are, or an
interest in shares in a company is, acquired by an employee or a person
connected with an employee, and
2. the right or opportunity to acquire the shares or interest in shares was
available by reason of the employment (1).
1 Income Tax (Earnings and Pensions) Act 2003, s 192
H3102Tax legislation provides that the employee is treated as having received an
employment-related loan at the time of the acquisition if the shares were acquired at
below the market value (1).
1 Income Tax (Earnings and Pensions) Act 2003, s 193
H3103 Disposal of shares for more than the market valueAn employee by reason of his employment may be able to acquire shares in the
company for which he works or another company.
H3104Where the employee disposes of the shares for a price which is in excess of the
market value of the shares then the difference between the market value and the
price sold is treated as earnings by HMRC (1).
1 Income Tax (Earnings and Pensions) Act 2003, s 199
H3105 Employment-related benefitsAny benefit or facility of any kind provided to the claimant and which is related to the
claimant's employment is recognised in the relevant tax legislation as an
employment-related benefit. This also includes the claimant's family and household.
H3106The definition of what is a benefit is very wide and includes everything that confers a
special bounty of any description on the recipient. However, something (other than a
loan where special provisions apply) which is a "fair bargain" between the employer
and the employee is not a "benefit".
H3107 « H3082HMRC determine the cash equivalent by determining the cost of the benefit minus
any part of that cost made good by the employee to the person(s) providing the
1 Income Tax (Earnings and Pensions) Act 2003, s 203(2)
H3108 Amounts exempt from taxation and are excluded from being earnings for UCParticular payments which are exempt from taxation do not fall to be treated as
earnings for UC (1). These are
1. mileage allowances and passenger payments
2. transport, travel and subsistence
3. education and work-related training
4. recreational benefits
5. non-cash vouchers and credit-tokens
6. removal benefits and expenses
7. payments to certain kinds of employees
8. pension provision
9. termination of employment payments
10. other miscellaneous payments.
H3110 « H3109- H3120 describe these amounts.
1 UC Regs, reg 55(2)(b); Income Tax (Earnings and Pensions) Act 2003, Part 4
H3109H3110 Mileage allowances and passenger payments Approved mileage allowance payments paid to an employee in respect of business
travel are exempt from taxation. Approved passenger payments are amounts paid to
an employee because, while using a car or van for business travel, the employee
carries in it one or more passengers who are also employees for whom the travel is
business travel. Such payments are exempt from taxation (1).
1 Income Tax (Earnings and Pensions) Act 2003, Part 4, Chapter 2
H3111 Transport, travel and subsistenceNo liability to taxation arises on transport, travel and subsistence (1). This includes
1. workplace parking
2. modest private use of heavy goods vehicles
3. payments and benefits connected with taxable cars and vans and exempt
heavy goods vehicles
4. incidental overnight expenses and benefits
5. works transport services
6. support for public bus services
7. cycling equipment
8. travel and subsistence during public transport strikes
9. transport between work and home for disabled employees
10. provision of cars for disabled employees
11. transport home for late night working.
1 Income Tax (Earnings and Pensions) Act 2003, Part 4, Chapter 3
H3112 Education and work-related trainingTraining which enables an employee to carry out their job is exempt from taxation (1).
1 Income Tax (Earnings and Pensions) Act 2003, Part 4, Chapter 4
H3113 Recreational benefitsBenefits in the form of sporting facilities made available to employees but not to the
general public are exempt from taxation (1).
1 Income Tax (Earnings and Pensions) Act 2003, Part 4, Chapter 5
H3115 Non-cash vouchers and credit tokensWhere a non-cash voucher or credit token is used by an employee to purchase an
item which is exempt from taxation as employment income (for instance, workplace
parking), then that voucher or token is also exempt (1).
1 Income Tax (Earnings and Pensions) Act 2003, Part 4, Chapter 6
H3116 Removal benefits and expensesWhere an employee moves residence in order to perform their employment and the
employer provides help with removal benefits and expenses then these are exempt
from taxation (1).
1 Income Tax (Earnings and Pensions) Act 2003, Part 4, Chapter 7
H3117 Payments to certain kinds of employeesThe
following (1) are exempt from taxation
1. accommodation benefits to ministers of religion
2. termination payments to MPs and others ceasing to hold office
3. overnight expenses of MPs and other elected representatives
4. EU travel expenses of MPs and other representatives
5. transport and subsistence for Government Ministers
6. armed forces leave travel facilities
7. armed forces food, drink and mess allowances
8. reservists and auxiliary forces training allowances
9. crown employees foreign service allowances
10. the income of consuls, official agents and employees working in UK
11. visiting forces and staff of designated allied headquarters
12. experts seconded to the European Commission
13. costs of transfer to the mainland for off-shore workers
14. allowances in lieu of coal.
1 Income Tax (Earnings and Pensions) Act 2003, Part 4, Chapter 8
H3118 Pension provisionNo tax liability arises on payments made by an employer in respect of an employee's
death or retirement (1).
1 Income Tax (Earnings and Pensions) Act 2003, Part 4, Chapter 9
H3119 Termination of employment paymentsThere is a limited tax liability for payments made by an employer in respect of
redundancy (1). A redundancy payment is excluded from the meaning of earnings for
the purposes of UC and falls to be treated as capital in the assessment period in
which it is received. ADM Chapter H1 provides guidance on capital.
1 Income Tax (Earnings and Pensions) Act 2003, Part 4, Chapter 10
H3120 Other miscellaneous payments « H3110Other miscellaneous payments (1) which are exempt from taxation include
1. certain payments in respect of living accommodation
2. payments in respect of work accommodation and supplies
3. subsidised meals
4. childcare costs
5. telephone and computer equipment
6. awards and gifts from staff suggestion schemes and long service awards
7. overseas medical treatment
8. incidental expenses of employment-related transfer of business assets.
1 Income Tax (Earnings and Pensions) Act 2003, Part 4, Chapter 11
H3130 Payments disregarded from employed earningsWhen calculating employed earnings
1. certain expenses allowed as a taxable deduction by HMRC from earnings (1)
2. expenses received from involvement in service user activity (2)
fall to be disregarded.
1 UC Regs, reg 55(3)(a); Income Tax (Earnings and Pensions) Act 2003, Part 5, Chapter 2;
2 UC Regs, reg 55(3)(b)
H3140 Expenses allowed as a deduction by HMRC « H3007Employed earnings do not include certain expenses allowed as a taxable deduction
by HMRC (1). These are expenses which the employee has met in connection with
1 UC Regs, reg 55(3)(a)
H3141The general rule (1) that HMRC follow is that an expense can be allowed where the
1. employee is obliged to incur and pay it as holder of the employment and
2. amount is incurred wholly, exclusively and necessarily in the performance of
the duties of the employment.
1 Income Tax (Earnings and Pensions) Act 2003, s 336
H3142The expense must be incurred in direct connection with the employer's trade or
business (1). If there is some element of private use, for example telephone bills, that
part of the bill for business use should be allowed. Any decision by HMRC on the
apportionment of expenses may be taken into account as evidence. If there is no
doubt, that decision can normally be followed (2).
1 Davies v. Gwaun Cae Gurwen Colliery (1924) 2K8 651; Borley v. Ockended (1925) 2K8 325;
2 R(IS) 16/93
H3143Examples of expenses for which deductions may be made are
1. equipment, tools and stationery for work purposes
2. overalls and specialist work clothing
3. telephone calls made entirely for work purposes
4. travelling costs between different work places and any accommodation costs
H3144 « H3007An expense that is in the employee's own interest or benefit, or which merely
enables the employee to go to work, would not satisfy the test. Child minding
expenses 1, and the cost of travel to a single place of work, are examples of
expenses that would not satisfy the test.
1 R(FC) 1/90
H3145HMRC specifically allow deductions from employment income for employee's
expenses paid by the employee (1). These include
1. travel expenses for necessary attendance and in the performance of duties
2. fees and subscriptions for professional bodies
3. employee liability and indemnity insurance
4. expenses of ministers of religion
5. limited agency fees paid by entertainers
6. certain earnings with a foreign element.
Business entertainment and gifts expenses do not generally qualify for a deduction
from earnings (2).
1 Income Tax (Earnings and Pensions) Act 2003, Part 5, Chapter 2; 2 s 356
H3160 Service usersEmployed earnings do not include a payment of expenses made to a person who is
involved in service user activity (1).
1 UC Regs, reg 55(3)(b)
1. a person who is being consulted by or on behalf of
1.1 a body which has a statutory duty to provide services in the field of
social care or
social housing or
1.2 a body which conducts research or undertakes monitoring for the
purpose of planning or improving the services in 1.1
in their capacity as a user, potential user, carer of a user or a person affected
by those services or
2. the carer of a person consulted under 1..
1 UC Regs, reg 53(2)
H3162For the purposes of H3161, a service user is a person
1.1 has used or
1.2. is using
1.3 may potentially use or
1.4. is otherwise affected by (for example, a carer)
the services referred to in 2. and
2. where the services concerned are delivered by a body which has a statutory
duty to provide services in the field of
2.1 health or
2.2 social care or
2.3 social housing and
3. who is consulted by the bodies in 2. or by an alternative body (for example,
educational establishments or voluntary and charitable organisations) who conduct
3.1 research or
3.2 monitoring or
planning in order to improve services through user involvement.
H3163With regards to H3161, service users may also be described as
1. experts-by-opinion or
2. patients or
3. potential patients or
4. clients or
5. carers or
6. focus groups.
H3164With regards to H3161, a body that seeks to improve services through user
consultation may describe the process as
1. service user and carer user involvement or
2. public involvement or
3. participation or
4. co-production or
5. Local Involvement Networks (LINks)
Anton is an out-patient at his local hospital and attends there on a regular basis for
treatment. He is in receipt of UC. Anton has volunteered to take part in a Patients'
Forum which discusses the services and care provided by the hospital. In order to
attend the meetings, Anton needs to get a taxi. The Health Trust pay Anton £40 for
attending the meetings and also reimburse his travel expenses. The expenses for
the taxi fare are reimbursed to him by the local Health Trust. The DM decides that
the travel expenses do not count as employed earnings when calculating Anton's
entitlement to UC but the £40 fee for attending the meeting is earned income.
Example 2Donna is asked to help with improving discharge and aftercare services at her local
NHS trust psychiatric hospital. Donna has experience of being admitted as an in
patient and of aftercare services. The trust invites Donna to participate in a planning
seminar. The trust offers her a payment of £120 as a fee and reimburses her £10
travel expenses. The DM decides that the travel expenses do not count as employed
earnings when calculating Donna's entitlement to UC, but the £120 fee is earned
Example 3Brian is a full time carer for his wife who is severely disabled. He is invited to
participate on a national steering group that is developing good practice guidelines
for respite care. Brian is paid a fee of £20 for his participation. He is reimbursed his
travel expenses of £90 and also £60 for the cost of a replacement carer for the time
that he will be away. The DM decides that the travel expenses and the £60 for the
replacement carer do not count as employed earnings when calculating Brian's
entitlement to UC, but the £20 fee for his participation is earned income.
Example 4Sally is invited by a local charity to provide feedback of her experience as a patient
receiving treatment from a mental health service. The charity has been
commissioned by an NHS trust to involve service users in monitoring the mental
health service. Sally is paid a fee of £40 for her time and also accepts a
reimbursement of £5 for a lunchtime meal. The DM decides that the expense for the
meal does not count as employed earnings when calculating Sally's entitlement to
UC, but the £40 fee is earned income.
Example 5Tony has rheumatoid arthritis. He is invited by a research team to join the steering
group for a study investigating a new treatment for this condition. The research is
funded by the NHS through the National Institute for Health Research and is being
undertaken by a team at the university. The university pays Tony £75 for each
meeting and reimburses his £20 travel expenses. The DM decides that the travel
expenses do not count as employed earnings when calculating Tony's entitlement to
UC, but the £75 fee received is earned income.
H3170 Calculating the amount of earningsWhen taking into account employed earnings (and the benefits treated as earnings)
in respect of an assessment period, the DM should allow a deduction for
1. the total relievable pension contributions made in that period (1) and
2. any amounts of
2.1 income tax and
2.2 class 1 contributions
that have been deducted or paid in that assessment period (2) and
3. any amounts withheld as donations to charity in a scheme approved by HMRC
in that assessment period (3).
Note: The earnings figure provided by RTI or as a self-reported amount will be the
claimant's gross taxable earnings. Gross taxable earnings already allow for pension
contributions paid under "net pay arrangements" and charitable donations. DMs
should be aware of this and ensure the deduction is not made twice.
1 UC Regs, reg 55(5)(a); 2 reg 55(5)(b); 3 reg 55(5)(c)
H3171A relievable pension contribution means (1) a contribution paid to a registered pension
scheme by or on behalf of a member of that scheme. This means that the
contribution can be paid by the individual member, who must be a relevant UK
individual, or by a third party on behalf of the individual member.
1 UC Regs, reg 53; Finance Act 2004, s 188
H3172A relevant UK individual means (1)
1. a person with earnings chargeable to UK income tax or
2. a person resident in the UK for some time of the year or
3. a person was resident in the UK both at some time during the five tax years
immediately before that year and when that person became a member of the
pension scheme or
4. a person, or their spouse, who has for the tax year general earnings from
overseas Crown employment subject to UK tax.
1 Finance Act 2004, s 189
H3173A contribution will not be a relievable pension contribution if it falls into
1. contributions after age 751
2. life assurance premium contributions (2)
3. contributions paid by employers (3)
4. age related or minimum payments (4).
1 Finance Act 2004, s 188(3)(a); 2 s 188(3)(aa); 3 s 188(3)(b); 4 s 188(3)(c)
H3180 Trade disputesWhere a person who has had employed earnings
1. has withdrawn their labour in a trade dispute and
2. is still subject to their employment contract
the DM must treat that person as possessing earnings of the same level they would
have had if they were not taking action in a trade dispute (1).
1 UC Regs, reg 56
H3181A trade dispute means (1) a dispute between workers and their employer which relates
wholly or mainly to one or more of
1. terms and conditions of employment, or the physical conditions in which any
workers are required to work
2. engagement or non-engagement, or termination or suspension of employment
or the duties of employment, of one or more workers
3. allocation of work or the duties of employment between workers or groups of workers
4. matters of discipline
5. a worker's membership or non-membership of a trade union
6. facilities for officials of trade unions
7. machinery for negotiation or consultation, and other procedures, including the
recognition by employers or employers' associations of the right of a trade
union to represent workers in such negotiation or consultation or in the
carrying out of such procedures.
1 UC Regs, reg 2; Trade Union and Labour Relations (Consolidation) Act 1992, s 244
ExampleRichard works for an insurance company and his normal monthly earnings are £490.
The trade union to which he belongs has voted to go on strike. Richard will be joining
the strike. Whilst on strike, Richard's employer will not be paying him any wage. The
DM treats Richard as having monthly earnings of £490 for the purposes of UC.
H3190 Earnings informationFor the purposes of UC, the information which is used to calculate a claimant's
earnings is the information which their employer is required to report to HMRC under
relevant legislation (1). This is the information received by RTI by the end of the
1 UC Regs, reg 61(1); Income Tax (Pay As You Earn) Regulations 2003, reg 86
H3191Unless H3192 applies, the earnings are to be treated as having been received by the
claimant in the assessment period in which the Secretary of State receives that
1 UC Regs, reg 61(3)
H3192 « H3191Where the Secretary of State has
1. estimated a claimant's earnings because the earnings were not reported and
2. has attributed them to a previous assessment period
then the earnings have to be treated as received in the assessment period for which
the estimate was made (1).
1 UC regs, reg 61(3)
H3193Where a claimant has employed earnings in an assessment period and the employer
1. is not required to report or
2. fails to report
them to HMRC then the DM can require the claimant to provide such information as
is required to enable the earnings to be calculated (1). This is also known as "self
1 UC Regs, reg 61(2)
ExampleJoanne works in a small garage and has made a claim for UC. Her employer has
had problems reporting Joanne's earnings to HMRC due to IT problems. In order to
calculate Joanne's award of UC, Joanne is asked to self-report the earnings she
receives from this employer through the self-reported earnings tool. Joanne may be
asked to produce verification of those earnings, for example a wage slip.
H3194As employers first move onto the RTI programme, data might be received for
assessment periods in which the claimant has already self-reported their earnings. If
earnings have already been self-reported then they must not be taken into account
H3200 Notional earningsNotional earnings are earnings which the claimant does not actually have but which
they are treated as possessing. For UC there are two situations where notional
earnings apply. These are
1. deprivation of earned income (1) and
2. where work is performed for no payment or payment at a rate less than that
would be normally paid for the work (2).
All such amounts are to be treated as earned income.
1 UC Regs, reg 60(1); 2 reg 60(3)
H3201 Deprivation of earned incomeIn a case
1.1 a person has deprived themselves or
an employer has arranged for a person to be deprived
of earned income and
2. the purpose of the deprivation was to
2.1 secure entitlement to UC or
2.2 increase the amount of UC
then that person must be treated as being in possession of that earned income (1).
1 UC Regs, reg 60(1)
H3202The purpose of
1. securing entitlement to UC or
2. increasing the amount of UC
has to be treated as existing where entitlement or higher entitlement to UC did in fact
result following the deprivation and the DM is of the view that this was an intended
and foreseeable consequence (1).
1 UC Regs, reg 60(2)
H3203 Meaning of depriveThe word "deprive" is an ordinary English word. Its meaning is not a question of law.
It should be given a normal everyday meaning (1).
1 R(SB) 38/85
H3204Claimants will have deprived themselves of earned income, if, because of their own
actions, they no longer have that income. Claimants will still have deprived
themselves of income whether or not another income has replaced the original
1 R(SB) 40/85
H3205Claimants cannot deprive themselves of income that they have already received. If a
payment of earned income is received it is actual income and should be taken into
account in the normal way.
H3206A deprivation of income may occur where a claimant's income is reduced to repay
an overpaid income. The DM should decide if a significant reason for the reduction is
to get or increase the amount of UC. DMs should bear in mind that the repayment of a
1. legally enforceable and
2. immediately repayable
debt cannot be for the purpose of increasing or getting UC (1).
1 R(SB) 12/91
H3207 Questions for considerationThe DM should consider the questions in H3210 - H3216 where claimants appear to
have deprived themselves of earned income.
H3210 Has a deprivation of earned income happened? « H3207Deprivation will have happened if a person
1. gives up or
2. transfers to another person
an income due to be received.
H3211The claimant has to prove that an income is no longer received. Once the DM has
shown that a claimant was receiving an income it is up to the claimant to prove it is
no longer paid. If the claimant cannot do this the DM should decide that the income
is still being received. The income should be taken into account as actual income (1).
1 R(SB) 38/85
H3212 Was the purpose of the deprivation to get or increase the amount of UC?There may be more than one reason for a person disposing of an income. Only one
of those reasons might be getting or increasing UC (1).
1 R(SB) 38/85
H3213Getting or increasing UC need not be the most important reason for disposing of an
income but it must be a significant reason (1).
1 R(SB) 40/85
H3214It is unlikely that there will be direct evidence that a deprivation was for the purpose
of getting benefit. Decide on a person's reasons for disposing of an income after
considering all the facts of the case. These may include
1. the person's explanations
2. the timing of the disposal
3. the claimant's knowledge of the benefit system
4. the likelihood of a benefit claim at the time of the deprivation.
H3215When considering claimants' intentions in depriving themselves of income the DM
should consider what account of the claimant's intentions best explains the facts of
the case. If the best explanation of the deprivation is that a significant reason for the
disposal was getting or increasing UC the DM should calculate a notional income.
H3216 Timing of the disposal of income? « H3207DMs should carefully consider the timing of a disposal of income as
1. a claim for UC made shortly after the disposal of an income may indicate that
getting or increasing UC was a significant reason for the disposal
2. a claim for UC made a long time after the disposal of an income is less likely
to indicate that getting or increasing UC was a significant reason for the
disposal. But if there is evidence that a claimant was considering claiming UC
at a later date, the deprivation may still have been for getting or increasing
H3220 Notional earnings and the performance of a service « H3227The DM should treat the claimant as having notional earnings where (1)
1. they perform a service for another person and
2. that other person
2.1 makes no payment of earnings or
2.2 pays less than the rate paid for comparable services in that location
3. the means of that other person are sufficient to pay for, or pay more, for those
1 UC Regs, reg 60(3)
H3221The amount of notional earnings which a claimant is treated as having is the amount
of pay that would be reasonable for the provision of those services (1).
1 UC Regs, reg 60(3)
[H3222-H3224]H3225 The DM should not take notional earnings into account (1) where the claimant
1. satisfies the DM that the means of the person for whom the service is
performed, are not enough to pay, or to pay more for the service or
2. is engaged by a charitable or voluntary organisation and the DM is satisfied
that it is reasonable for the services to be provided free of charge or
3. does not accept a payment for their involvement as a service user (see H3161
for meaning of service user) or
4. provides a service under an employment or training programme approved by
the Secretary of State.
1 UC Regs, reg 60(3)(b) & (4)
H3226 Meaning of voluntary organisationAlthough there is no definition of voluntary organisation for notional earnings
purposes, DMs should regard it as meaning a body that is not a
1. public authority or
whose activities are not carried out for profit. Organisations such as the St John
Ambulance and Attend (formerly the league of Hospital Friends) are examples of
H3227 Meaning of personThe meaning of "person" as used in DMG H3220 1. includes (1)
1. a limited company
2. a corporate body
3. an individual.
1 R(SB) 13/86
H3228 Performance of a serviceA service performed for another person benefits that person. That benefit may be in
not having to employ someone else to do the work. It might also be in getting extra
work done at little, or no, cost.
H3229 Details of the service performedThere may be a low rate of payment, or no payment at all being made for the
service. If so, compare it with other employment by finding out
1. who is benefiting from the service
2. why it is being provided
3. when it is being provided (for example, during the day, night, or both)
4. where it is provided
5. who suggested that it be provided
6. what duties are involved
7. how many hours each day, or week, are spent on those duties.
H3230 When earnings are not to be treated as paidDo not treat the claimant as having earnings where (1)
1. the claimant works for a charitable or voluntary organisation, for example
Attend (formerly the League of Hospital Friends)
2. it is reasonable for the service to be provided free of charge or at a rate less
than the rate that would be paid for comparable services in the same area.
1 UC Regs, reg 60(4)(a)
H3240 Is it reasonable to provide services free of charge?The question of reasonableness should be considered based on the circumstances
of each case (1). No exhaustive list can be given of relevant factors but they may
include matters such as
1. whether the person providing the services is getting anything in return (for
example, training which may assist the person in obtaining employment could
be seen as reasonable)
2. the length of time for which the services have been offered (the shorter the
period, the more reasonable it may be)
3. claimants are expected to do their best to avoid dependency on benefits. They
should seek paid work wherever possible.
Whether it is reasonable for the employer to pay is not relevant here. The
important point is whether it is reasonable for the claimant to provide the services
free of charge.
1 R(IS) 12/92
H3241 Service users and notional earningsDo not treat the claimant as having notional earnings where the claimant provides services
1. free of charge or
2. at a rate less than would be paid for comparable services in the same location
whilst participating as a service user (1). H3161 provides guidance on what a service
1 UC Regs, reg 60(4)(b)
H3242 Employment and training programmeDo not treat the claimant as having notional earnings where the claimant provides
services under or in connection with participation in
1. an employment or
2. a training
programme approved by the Secretary of State (1).
1 UC Regs, reg 60(4)(c)
H3246 Fine payment work - England and WalesFine payment work has been introduced for people who are genuinely unable to pay
their fine. Claimants are allowed to do unpaid work in the voluntary sector as an
alternative. When the work is done the fine is regarded as paid. A fines officer works
out the number of hours the offender is required to work to discharge the fine. The
offender is allowed to reduce the number of hours he is required to work by paying
part of the fine.
H3247Offenders who are genuinely unable to pay their fine will be able to work off their fine
at a fixed rate (1). In these circumstances notional income should not be applied. They
do not have the opportunity to be paid for the work they are doing, it is done to
comply with a court order. Offenders cannot be said to be performing a service when
they are complying with a court order.
1 The Discharge of Fines by Unpaid Work (Prescribed Hourly Sum) Regulations 2004, reg 2
H3248 Community payback orders - ScotlandThese
orders (1) are similar to fine payment work in England and Wales. They provide
a community-based alternative to imprisonment for failure to pay a fine, substituting
the unpaid portion of a fine for a period of constructive activity which is organised by
the social work department.
1 Criminal Procedure (Scotland) Act 1995, s 227A
H3249The period of these orders can vary between 10 and 100 hours. The activity
undertaken often includes elements of social education, financial management and
unpaid work. Offenders cannot be said to be performing a service when they are
complying with a community payback order.
H3250 Calculation of gross notional earningsThe maximum amount of notional earnings that can be taken into account is the
lower of the
1. market rate for comparable employment in the area and
2. means of the person to pay for the service.
The DM should take into account at least the NMW rate relevant to the claimant.
H3252 Comparable servicesIt is not identical or equivalent services that has to be identified, but comparable
services. Work of a different type can be comparable if the skills and experience
needed are similar to those being used.
H3253Work of the same type will usually be comparable. But it may not always be paid at
the same rate. Rates of pay can be affected by the employee's
H3254Do not assume that the highest rate paid is the normal rate for the job. If the
amounts paid vary, compare the available evidence with the pay and requirements
of the claimant's job.
H3255 Payments in kindPayments in kind are not earnings (1). Payments in kind should not be taken into
account when looking at whether a person is paid, or paid less, than the rate for
comparable employment (2).
1 UC Regs, reg 52; 2 R(IS) 2/98
ExampleBella works as a shop assistant for ten hours per week. She receives payment of £7
in cash and goods to the value of £35 each week. The goods to the value of £35 are
payment in kind and are ignored. The DM considers what the market rate for the job
is and calculates notional earnings at £70 per week. He decides it is reasonable to
deduct the £7 cash payment from the notional earnings and takes £63 per week into
account. The total amount in the form of earnings taken into account is therefore £70
(£7 actual earnings + £63 notional earnings).
H3256 Are earnings to be treated as paidConsider whether it is reasonable to treat earnings as paid by taking into account
1. whether the employer
pays less than the going rate for similar employment in the area or
makes no payment and
2. a reasonable rate of pay for the job they are doing.
H3257 Reasonable rates of payThe rate paid for comparable employment in the area is a question of fact. It should
not be assumed to be the national minimum wage. The DM must treat the claimant
as possessing at least the national minimum wage rate that is relevant to them. The
amount of notional earnings may be more than the national minimum wage but it
should not be less.
H3258The parts of the job which would normally attract earnings, or more earnings, should
be identified. Ignore hours spent under training or supervision, unless the cost is
outweighed by the work performed.
H3259 Can the person afford to pay?The claimant may say that the employer is unable to pay. If this is the case, the
claimant must submit evidence, so that the DM can consider the question. This
1. in the case of a S/E trader, the accounts, bank statements and details of
trading turnover or
2. in the case of an individual, details of that person's resources and outgoings.
H3260Where the service is for a person, take account of that person's actual means. This
is not the amount by which their income would exceed a notional benefit level (1). It is
the amount of money that they actually have available to them.
1 R(SB) 3/92
H3261The DM should consider what is reasonable in each case. Where the employer is
getting UC they will not normally have the means to pay. But this general rule may
not always apply. For example, where the "employer" gets benefits, or other
payments, to pay for their personal care.
H3270 Amount to be taken into accountAfter determining the gross amount of notional earnings, deduct any actual earnings
paid. Actual earnings should be calculated in the normal way.
H3271From the resulting figure, make notional deductions for
1. income tax and
2. Class 1 contributions.
The Appendix to this chapter provides details of tax and contribution rates and
H3272 Deduction for notional income taxIncome tax is made up of
1. a personal allowance - given to everyone
2. a married couple's allowance - which can be claimed by a member of a
3. an additional personal allowance - given in special cases for a child or young
H3273 Deduction for notional NI contributionThe deduction depends on the claimant's circumstances. Employed earners
between 16 and pension age have to pay NI contributions. This is subject to the
amount of their earnings.
H3274Some married women can pay NI contributions at a reduced rate. These are women who
1. had chosen to pay the reduced rate before 12.5.77 and
2. were married before 6.4.77 and
3. have continued to renew their certificate of election.
H3275The right to pay reduced rate contributions ends if the woman
1. gets divorced or her marriage is annulled or
2. becomes a widow, and has not become entitled to WB or
3. loses her right to WB for a reason other than remarrying or
4. has had no earnings on which Class 1 contributions are payable and has not
been S/E in any two consecutive tax years since 5.4.78.
H3276Standard rate deductions should be made unless there is a current certificate of
H3277 Onus of proofIn general, the burden of proof rests on the DM (1). But that is not always the case. The
onus of proving that the employer does not have the means to pay falls on the
claimant. The DM then considers what reasonable amount of notional earnings
should be taken into account. ADM Chapter A1 provides guidance on the burden of
1 R(SB) 13/86
Notional deductions for tax and national insurance and NMW rates
Main income tax allowances
Personal for those
born after 5.4.48
Personal for those
born between 6.4.38
Personal for those
born before 6.4.38
Married couple aged
75 & over
Basic rates of tax
1 - 32,010
at basic rate of 20%
1 - 31,865
at basic rate of 20%
National insurance contributions
Class 1 contributions
The Class 1 NI contribution for any week or month is based on the percentage rate
appropriate to the band in which the estimated gross earnings fall.
1. up to LEL
2. LEL to UEL
12% of earnings that
exceed LEL up to
No contributions are payable on weekly earnings of £149 or less or monthly earnings
of £646 or less. Otherwise contributions are still payable at a rate of 12% for
earnings between £149.01 and £797 per week and at 2% for earnings above £797
1. up to LEL
2. LEL to UEL
12% of earnings that
exceed LEL up to
No contributions are payable on weekly earnings of £153 or less or monthly earnings
of £663 or less. Otherwise contributions are still payable at a rate of 12% for
earnings between £153.01 and £805 per week and at 2% for earnings above £805
National Minimum Wage Hourly Rates
21 and over
18 to 20
2012 £6.19 £4.98 £3.68 £2.65
2013 £6.31 £5.03 £3.72 £2.68