Carer’s Allowance – can deductible employment expenses help you qualify?

In April 2016 the new National Living Wage was introduced, which saw the minimum wage for those aged 25 or over increase from £6.70 to £7.20 per hour. While this is good news for most low paid workers, it may have a knock on effect for those on low earnings if they are claiming Carer’s Allowance. Here we explain the problem and try and provide some helpful information to those affected.

Carer’s Allowance

Carer's Allowance is paid weekly to carers (currently £62.10) who help look after someone with substantial caring needs for at least 35 hours a week. The person who is cared for must receive either disability living allowance (middle or higher rate care component), the daily living component of personal independence payment, attendance allowance, armed forces independence payment or constant attendance allowance (at or above the normal maximum rate with an Industrial Injuries Disablement Benefit or basic (full day) rate with a War Disablement Pension)

You can find out more about Carer's Allowance on the LITRG website.

Earnings limit

There are some conditions to be met in order to get Carer's Allowance. One of them is that your earnings after allowable deductions must be no more than £110 per week. (‘Earnings’ includes money from employment and self-employment, however money you get from private or occupational pension is not counted.) People with fluctuating earnings may be able to average their earnings over a certain period.

Prior to April 2016, someone aged 25 or over working 16 hours on the National Minimum Wage earned £107.20 per week. However, from April 2016, this person will have earnings of £115.20 per week and is at risk of losing all of their Carer's Allowance.

A person in this position may be tempted to cut their hours so that they still qualify however depending on their circumstances, cutting their hours to below 16 could mean they no longer qualify for Working Tax Credit.

Allowable deductions

If you are affected, please note that there may be deductions that can be made from your earnings to help you retain your Carer's Allowance payments without having to cut your hours.

These include:

  • Income tax and National Insurance contributions (NIC)
  • Half of any contributions that you make into a work or personal pension.
  • An expense that is not repaid to an employee by the employer if it is incurred in the performance of the duties of the employment and is wholly, exclusively and necessarily incurred (in that same way that they are deductible for income tax purposes).

Examples of expenses for which deductions may be made are

  1. special tools and clothing
  2. professional fees and subscriptions
  3. telephone calls made entirely for work purposes
  4. business mileage or other work related travel expenses and any associated subsistence costs
  5. some costs of working from home

You can find out more about the income tax treatment of employment expenses on the LITRG website.

You can also take off up to half of your earnings (after the above deductions if they apply) for amounts you pay to someone to look after either a child under 16 who you or your partner get child benefit for, or the person you are the carer for, when you are at work (so long as you pay someone other than a close relative).

If your earnings after deductions vary, you may still be able to claim Carer’s Allowance for the weeks when they are below the £110 limit. The DWP also has the discretion to average your earnings over a five-week period, or a ‘recognisable cycle of work’ if you have one.

Should you need it to refer to, you can find the Department for Work and Pensions' (DWP) Decision Makers Guidance dealing with the calculation of earnings on GOV.UK. 

Taxable income

Before we leave you, we would just like to point out that Carer’s Allowance, although paid without tax taken off, is actually taxable income, as discussed on LITRG’s site.

It is also counted as ‘social security income’ for tax credit purposes and ‘unearned income’ for universal credit. However if you receive Carer's Allowance, you may be entitled to an additional carer’s element of universal credit and have your capability for work assessment adjusted – you can find out more about Carer’s Allowance and universal credit on the Carers UK site.

Final thoughts

We are very concerned that this problematic interaction will cause a significant loss of income for those affected. It seems that there is a simple solution available – raise the earning threshold for Carer’s Allowance automatically with the uprating of the minimum wage. We hope that the Government can be persuaded to give the matter proper consideration so that those affected will no longer have to face the choice between giving up work or losing their benefits.