Guidance: Working out your income for tax credit claims and renewals

Overview

When you claim tax credits, you’ll need to give details of your total income. You’ll also need to work out your income when you renew your tax credits each year.

Usually, what you’re entitled to is based on your income for the last tax year (6 April one year to 5 April the next).

Your income includes:

• wages as an employee, including any ‘employer benefits’ you might have had
• other income, like interest on savings or pensions
• money from state benefits unless they’re ‘tax free’ benefits
• money from employment including if you cannot work your normal hours but you’re still getting paid (‘on furlough’)
• your profits and earnings if you’re self-employed
• some payments relating to coronavirus (COVID-19) that you may have received

Do not include income from:

• any Test and Trace Support Payment you got because you needed to self-isolate due to coronavirus
• the one-off £500 payment for working households receiving tax credits

This guide tells you how to work out your wages, self-employment income and other income.

Income from employment

There are 3 steps to working out your total income.

Step 1: work out your gross pay

This is your total wages from all jobs you had in the last tax year, before any tax and National Insurance deductions. If you have had certain employee benefits you’ll need to add these in, as well as any tips or strike pay.

Add up any of the following that apply to you, to get your total gross pay.

Add up these amounts	Notes
Total wages	Do not take off tax or National Insurance.
Employee benefits	For example, company car or goods they gave you.
Tips	Do not include if they are already in your taxable pay.
Money you got because your job ended or changed	Only include what you got that was more than £30,000.
Strike pay from your trade union	None.
Money you made from stocks and shares that you got from your employment	None.
Payments for any work you did whilst in prison	None.
Earnings from outside the UK	This must be in British pounds, to work this out, use the average exchange rate for the last tax year. This will be the average exchange rate for the year to 31 March.

You can use HMRC exchange rate tables to work out earnings from outside the UK.

Step 2: what to take off your gross pay

To work out what to take off your gross pay, add up any of the following that apply to you, to get a total amount:

Add up these amounts	Notes
Statutory Maternity, Paternity or Adoption Pay	If you received more than £100 for a week, only include £100 for that week.
Work expenses which related only to doing your job (do not include the cost of getting to and from work)	Do not include if your employer reimbursed them.
Fees and subscriptions to professional bodies or societies	Do not include if your employer reimbursed them.
Employee liabilities and indemnity insurance premiums	Do not include if your employer reimbursed them.
Agency fees if you’re an entertainer	Do not include if your employer reimbursed them.
The maintenance cost of tools for your job	Only if agreed by your employer and HMRC — you’ll find the allowable amount on your P2 Coding Notice.
Special clothes that are necessary to do your job — for example a uniform	Only if agreed by your employer and HMRC — you’ll find the allowable amount on your P2 Coding Notice.
Any pension contributions made to a registered scheme not paid through an employer Any pension contributions made to a registered scheme paid through an employer out of your net income, for example after tax and national insurance has been paid	Include any tax relief due, there is a working sheet you can use to work out your pension contributions. For advice on tax relief due contact your pension provider Include any tax relief due, there is a working sheet you can use to work out your pension contributions. For advice on tax relief due contact your pension provider.
Donations to charity you made using Gift Aid	Include the gross amount, there’s a working sheet you can use to work out your pension contributions or Gift Aid.

You can use this working sheet to work out your pension contributions or Gift Aid.

Step 3: what you have left

Take the step 2 total from the step 1 total to get your total income.

This figure is your ‘earnings as an employee from all jobs’.

Employer benefits

When you work out your gross pay as an employee, you need to include the taxable value of certain benefits you received from your employer.

Form P9D and the £8,500 earnings limit were abolished from 6 April 2016. Form P9D only relates to tax year 2015 to 2016 and earlier.

Add up any of the following that apply to you, to work out what to include in your gross pay.

Add up these amounts	Where to find the amount on your P11D
Mileage allowance payments over the tax free approved amount	Section E of your P11D.
Running costs your employer has paid for	Section E or included in section N in your P11D.
A company car	Section F of your P11D (box 9).
Car fuel	Section F of your P11D (box 10.)
Expenses payments made to you unless they were business expenses	Section J, M or N of your P11D.
Goods and assets your employer has given to you, for example gifts of food and drink	Section A of your P11D.
Payments made by your employer on your behalf, for example if your employer paid your rent	Section B of your P11D.
Vouchers or credit tokens, for example company credit cards — do not include the cash equivalent of childcare vouchers	Section C of your P11D.

For help calculating the value of your benefits, use the worksheet in the guidance notes that came with your renewal pack. You can contact the tax credit helpline.

Income from self-employment

There are 3 steps to working out your income from self-employment.

Step 1: work out your profit

Your profit is what you gave on your Self Assessment tax return for the last tax year. If you had more than one business, add up all of the separate business profits.

If you have not filled in your tax return, you’ll need to estimate your profit.

What else to include

Make sure your profit includes other income or profits your business received, for example rental income from a flat above a shop. Do not include this as ‘other income’ too.

Include any profit from working outside the UK, in British pounds. To work this out, use the average exchange rate for the last tax year. This will be the average exchange rate for the year to 31 March. Use HMRC exchange rate tables.

You can get help with working out your profit by contacing the Self Assessment helpline.

Step 2: what to take off your profit

To work out what to take off your profit, add up:

• the gross amount of any personal pension payments
• any trading losses from the same business you brought forward from a previous year
• the gross amount of any donations to charity using Gift Aid

There’s a working sheet you can use to work out your pension contributions, Gift Aid or trading losses.

Step 3: what you have left

Take the step 2 total from the step 1 total, to get your income from self-employment.

If you made a loss, your ‘income from self-employment’ for tax credit purposes is 0.

Coronavirus payments

If you received a coronavirus-related payment, you must include it in your income for your tax credit claims or renewal. The following list is in alphabetical order.

Bonus payment for health and social care staff (Scotland only)

A one-off payment made to all NHS and social care workers in Scotland.

Childminding Business Sustainability Fund (Scotland only)

A £750 grant made available to all childminding services registered with the Care Inspectorate as of 1 February 2021.

Only include the payment if it forms part of your trading income for tax credits.

Coronavirus Job Retention Scheme

A scheme to protect jobs and provide wage support to furloughed employees.

Include payments you’ve received in your earnings from your employer if you’re an employee.

If you’re an employer, only include the payment if it forms part of your trading income for tax credits.

COVID-19 Statutory Sick Pay Enhancement Scheme (Wales only)

Payments made to social care staff working in care homes, domiciliary care and as personal assistants in Wales.

Eat Out to Help Out Scheme

A scheme that encouraged people to eat in restaurants or other eating establishments, by giving them a discount which restaurants can then claim back from the government.

Include the total amount you were repaid by the government if the repayment forms part of your trading income for tax credits.

Fishing industry support schemes established between 6 April 2020 and 5 April 2021

Payments from any scheme that has been set up in the UK where coronavirus has impacted the fishing industry.

Only include the payment if it forms part of your trading income for tax credits.

Mobile Close Contact Service Provider Support Fund (Scotland only)

A new scheme which pays a one-off £4,000 grant to mobile close contact service providers (such as mobile hairdressers, mobile barbers and driving instructors).

Newly Self-Employed Hardship Fund (Scotland only)

A one-off £4,000 payment to newly self-employed Scottish residents who do not qualify for the Self-Employment Income Support Scheme grant.

Newly Self-Employed Support Scheme (Northern Ireland only)

Financial support to newly self-employed individuals (sole traders and those in partnerships) who have been impacted by coronavirus.

Retail, Hospitality and Leisure Grant

A grant paid to self-employed businesses in the retail, hospitality and leisure industry.

Self-Employed Income Support Scheme

A scheme to provide financial support to those who have been impacted by coronavirus and are self-employed or a member of a partnership.

Small Business Grants Fund

A grant for self-employed businesses that qualify for small business rate relief (and would usually pay business rates).

Special or bonus payment (Wales only)

A one-off special or bonus payment made to NHS and social care staff in Wales.

Staff Recognition Payment (Northern Ireland only)

A one-off payment made to health and social care workers in Northern Ireland.

Taxi driver grant (Scotland only)

A £1,500 grant for private hire and taxi drivers in Scotland.

Other income

As well as what you earn from work, you’ll need to work out the total amount of any other income you’ve had. In most cases, you’ll only need to include what you’ve had that was more than £300.

Income to include over £300

Add up the full amount of the following types of other income, then take off £300.

Income from dividends

Include any UK company dividends you’ve received. Also add in the tax credit — shown on the dividend voucher supplied by the company. This could include:

• gross amount of dividend income from company shares, authorised unit trusts and open ended investment companies — the amount to include is the total before tax
• stock or scrip dividends where shareholders receive shares instead of a cash dividend — the amount to include is the total before tax

Exclude any capital gains exempt from tax.

Saving and investment income

Include the amount before tax is taken off. Do not include interest from tax-exempt investments like Individual Savings Accounts. This could include:

• gross interest from banks and building societies and other deposit takers in the UK
• interest from National Savings accounts
• chargeable event gains, if for instance your life insurance policy matures in year — the amount of the gain will be shown on the certificate issued by your insurer

Property income

Include income from property in the UK that you own or rent. This could include:

• profit from renting or leasing out land and property (if your rental property made a loss, you can use working sheet TC825 to help you work out what to enter)
• Rent-a-Room Scheme income above £7,500 or £3,750 if you’re a joint owner

State pensions

Include:

• State Pension
• Widow’s Pension
• Widowed Mother’s Allowance
• Widowed Parent’s Allowance
• Industrial Death Benefit

Do not include the Christmas bonus, winter fuel payment, or war pensions.

Occupational or personal pensions

Include the full amount before any tax was deducted. You can find this on your P60 or other certificates of pension paid.

Also include any annuity payments from a pension scheme.

If your pension includes an extra amount for a work-related illness or injury, contact the tax credit helpline.

Pension lump sums

Do not include any tax-free lump sum.

You can usually take up to 25% of the amount built up in any pension as a tax-free lump sum.

For example, if your whole pension is worth £60,000, you can take up to £15,000 as a tax-free lump sum.

You do not need to include the tax-free £15,000 as income for tax credits.

Income from trusts, settlements and estates

You can get the figure from form R185 that the trustees or administrators will have given you. Include the amount before any tax was taken off (add together the ‘net’ amounts and ‘tax paid’ or ‘tax credit’ amounts).

Foreign income

For example:

• income from investments and property overseas
• social security payments from abroad
• foreign pensions

Include the gross amount, before any tax, whether or not it came into the UK.

You should include any foreign income in British pounds. You can take off any banking charge or commission paid when converting foreign currency.

To convert foreign income into British pounds, use the average exchange rate for the last tax year. This will be the average exchange rate for the year to 31 March. You can use HMRC exchange rate tables.

If you need any help, you can contact the tax credit helpline.

Notional income

Notional income is income that you’re treated as having which you may not in fact have.

Include	Notes
Trust income that under Income Tax rules is treated as the income of another person	For example, investment income of a child where you’ve provided trust funds of more than £100.
Income you did not take, so you could get tax credits or more tax credits	None.
Income that you were entitled to, but did not apply for	For example, a taxable social security benefit.
Employment income you could have had	For example, because you worked for free, or for less than the going rate.
Capital that’s treated as income	For example, if you hold shares in a UK company, and they gave you new shares (a ‘stock dividend’) instead of a cash dividend.

For help working out notional income, you can contact the tax credit helpline.

Income to include in full

You should include the following income amounts in full (do not deduct £300):

• Adult Dependants’ Grant paid to students with a partner or a dependent adult
• dependants’ grants for students in Scotland
• taxable miscellaneous income, for example copyright royalties paid to you for a book when you’re not a professional author

What not to include

Do not include:

• maintenance payments received from a former partner
• tax credits payments
• student loans
• student grants, except the Adult Dependants’ Grant or any dependants’ grant in Scotland
• income your children have had, unless it’s taxable in your or your partner’s name
• any payments received through a disguised remuneration or loan charge scheme

Working out your total other income

To get the final figure:

• add up all the amounts to include over £300 — add up the full amounts, then take £300 away
• then add in all the amounts to include in full

If you end up with a minus figure, your ‘other income’ for tax credit purposes is 0.

More information

For help working out your other income, you can either:

• use the worksheet in the guidance notes that came with your renewal pack
• contact the tax credit helpline