Tax and benefits for carers

Updated on 15 November 2018

On this page we look at Carer’s Allowance (and related tax issues).

As a carer, you may be able to claim various credits and benefits. The main benefit that you can claim is ‘Carer’s Allowance’ – this benefit is considered by the Government to be an ‘earnings-replacement’ benefit where you spend at least 35 hours a week caring for someone else. This means it is intended to provide income for a person unable to do paid work because of their caring responsibilities; it is not a payment for care provided or a ‘carer’s wage’. It also does not satisfy the work requirements for claiming working tax credit.

If the person you are caring for receives certain benefits, the amount they receive may be affected by your claim for Carer’s Allowance. It is important that both you and the person you care for understand the potential consequences of your claim for Carer’s Allowance.

You may also be able to claim various other tax credits and state benefits. In this section, we look at Carer’s Allowance only, however we suggest you seek a benefits review from a welfare rights organisation such as Citizens Advice or use one of the independent benefits calculators referred to on GOV.UK.

This page refers to the rules that apply in England, Wales and Scotland. There is an equivalent benefit in Northern Ireland, with similar rules and claim form. You can find more information on the nidirect website.

What is Carer’s Allowance?

Carer’s Allowance is a taxable benefit. You might be able to get Carer’s Allowance if you care for a disabled person for 35 hours or more each week. You do not have to be related to, or live with, the person you look after.

Carer’s Allowance is paid to the person who does the caring – not the person being cared for. However, you should be aware that if you claim Carer’s allowance it can affect the benefits of the person being cared for – see ‘how does my claim affect other credits and benefits?’ below.

The current rate (2018/19) is £64.60 a week. Carer’s Allowance does not depend on the level of your savings you or your partner have or if you have paid any National Insurance contributions (NIC). It is, however, taxable and counts as income for tax credits and as unearned income for universal credit. It may also count as income for other benefits. It can also be affected by any earnings you have from work (but not your partner’s earnings).

The Department for Work and Pensions (DWP) can pay your Carer’s Allowance every 13 weeks, every four weeks or every week, normally into a bank account. You can check your payments on your bank account statements. If you think a payment is wrong, get in touch with the Carer’s Allowance Unit straight away.

Christmas Bonus

Just before Christmas each year you will get a tax-free Christmas Bonus with your Carer’s Allowance. You will only get a Christmas Bonus with your Carer’s Allowance if you do not get a Christmas Bonus with another benefit.

If someone else is also looking after the same person

If someone else is also looking after the same person as you are, only one of you can get Carer’s Allowance. Two people cannot get Carer’s Allowance at the same time for looking after the same person. You must decide between you who is going to claim it.

If you look after more than one person

You will only get Carer’s Allowance once each week even if you look after more than one person.

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Am I eligible to claim Carer’s Allowance?

Claimant conditions

If you meet the following basic conditions, you may be eligible to claim Carer’s Allowance:

  • You have been in England, Scotland or Wales for at least two of the last three years and you normally live in England, Scotland or Wales), or you live abroad as a member of the armed forces. There are some exceptions to these conditions if you live in another EEA country or Switzerland, you need to look at the GOV.UK website and may need to seek further advice.)
  • You spend at least 35 hours every week caring for a severely disabled person.
  • You are at least 16 years old when you qualify for Carer’s Allowance.
  • You are not doing work for which you earn (or expect to earn) more than £120 a week (in 2018/19) after certain expenses have been deducted.
  • You are not attending a full-time course of education or studying for more than 21 hours or more a week.

  • You are not subject to immigration control (although there are some exceptions to this).

Further conditions

In addition, you can only claim Carer’s Allowance if the person you are looking after has been awarded one of the following qualifying benefits:

  • Personal Independence Payment at either rate of the Daily Living Component;
  • Disability Living Allowance at the middle or highest rate of the care component;
  • Attendance Allowance;
  • Constant Attendance Allowance at or above the normal maximum rate as an addition to Industrial Injuries Disablement Benefit, or at or above the basic (full day) rate as an addition to a War Disablement Pension;
  • Armed Forces Independence Payment.

If the person you care for is getting one of these benefits, they will have a letter telling them what rate they are getting.

If you get other benefits

If you get certain other benefits and they pay you £64.60 or more per week, you may not receive Carer’s Allowance although you will have 'underlying entitlement' to it. This is called the 'overlapping' benefits rule. You can find out more on GOV.UK.

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What is the earnings threshold?

One of the conditions for Carer’s Allowance is that you must not earn more than £120 a week (in 2018/19). This includes money from employment and self-employment, for example, if you have a part-time job. Money you get from private or occupational pensions, however, is not counted as earnings. You can read more about how DWP can check your earnings in the response to this Parliamentary Question.

The DWP has the discretion to average your earnings over a five-week period, or a ‘recognisable cycle of work’ if you have one. We look at the other rules around employment earnings below.

You should be aware that although the earnings threshold was increased from £116 to £120 a week from April 2018, if you are working 16 hours at the National Living Wage of £7.83 per hour (for those aged 25 or over) you may be at risk of losing all of your Carer’s Allowance if you do not have any deductions, as your earnings would be £125.28 (see below for allowable deductions).

When it comes to self-employment, your earnings are measured for carers allowance after expenses of running your business have been deducted (as well as the other deductions mentioned in this section). You can read the official guidance on deductible expenses in the Decision Maker’s Guide, starting at 15580. 

There is other useful information in the ‘Self-employed earners’ section of the Decision Maker’s Guide that you may want to read– e.g. on how your weekly earnings will be calculated (usually if you are self-employed, your weekly earnings will be averaged over a year, however if you have recently become self-employed or there has been a change that's likely to affect the normal pattern of your business, the DWP can calculate your earnings in a different way).

What are my weekly earnings?

To work out your weekly earnings, you only look at what you have earned after you have paid:

  • National Insurance contributions (NIC)
  • income tax
  • half of any money you pay towards personal and occupational pension schemes.

You can also take off up to half of the rest of your earnings for amounts you pay to someone from outside your family to look after children, or the person you look after, when you are at work.

You may also be able to take into account some other expenses, such as expenses you have to pay to enable you to do your job.

Such an expense must, as for income tax purposes, be incurred in the performance of the duties of the employment and be wholly, exclusively and necessarily incurred.

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 our website.

If your earnings after deductions vary, you may still be able to claim Carer’s Allowance for the weeks when they are below the £120 limit.

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 (see chapter 15).

Keeping your Carer’s Allowance

To keep your Carer’s Allowance if you earn just over £120 a week, you could cut your hours so that you still qualify. However, depending on your circumstances, cutting your hours to below 16 could mean that you no longer qualify for another vital strand of financial support – working tax credit (or indeed, things like 30 hours free childcare).

Example

Zara, a single parent, cares for her disabled mother for at least 35 hours a week and receives Carer’s Allowance of £64.60 a week in addition to child benefit and child tax credit.

She finds suitable employment for 16 hours a week at £7.83 an hour (£125.28 a week). But because she now earns more than £120 a week, she is no longer entitled to Carer’s Allowance. She is, however, entitled to claim working tax credit (WTC).

Alternatively, Zara may be able to make deductions in the calculation of her earnings to bring her under the £120 threshold for Carer’s Allowance. If, for example, Zara contributed £12 into a pension, she would be able to retain her Carer’s Allowance in addition to potentially securing some working tax credits support, although the WTC award would be reduced by 41p in the £1 for the Carer’s Allowance.

Zara might consider reducing her hours to 15 a week so that she is earning under the £120 a week threshold so she can keep her Carer’s Allowance. However, if she does this she will lose her entitlement to working tax credit.

We recommend that anyone in a similar position contact a local advice agency such as Citizens Advice to get help with the best course of action for them.

Making pension contributions

If you are employed and want to make pension contributions to reduce your earnings for Carers Allowance purposes, you may be able to join your employer’s pension scheme. All employers have to enrol eligible staff into a workplace pension scheme under the auto-enrolment programme. You can find out more about auto-enrolment on our website.

The problem (as set out in our auto enrolment guidance) is that on weekly pay of less than £192, your employer does not need to automatically put you into a workplace pension scheme. However, you can ask that they do this manually

At the moment the minimum employee/employer contribution rates are set at a very low level and as things stand, a 1% or even 3% or 5% pension contribution deduction on weekly earnings of around £120 (or even a bit more) would not translate into a contribution of £12. But once you are in a workplace pension scheme, you can decide to put more into your pension pot voluntarily. This would still count for Carer's Allowance deduction purposes. 

Many employers use the 'default' pension scheme set up by government for their workplace pension obligations – NEST (National Employment Savings Trust). As such, you may find it useful to look at NEST's guidance on being able to pay more into your pension scheme than the bare minimum. 

If you are self-employed, then you can find information on setting up a pension on the Money Advice Service’s website. One option is to use NEST. Although NEST is primarily for people who are employed, they also allow some self-employed people to save with them.

You can find out more about NEST for the self-employed on their website.

Conclusion

We are very concerned about the earnings threshold for Carer’s Allowance and in particular, the problematic interaction with the minimum wage and tax credits. It seems that there is a simple solution available – raise the earning threshold for Carer’s Allowance to equal 16 hours x minimum wage and ensure it is automatically uprated at the same time as the minimum wage. We continue to make representations to this effect, most recently in our submission to the Work and Pensions Committee inquiry on employment support for carers and hope that there will be a change in the rules soon.

In the meantime, if you have been affected by the rules, please contact us with details of your experience.

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What are dependency increases?

If you have been receiving Carer’s Allowance since before 6 April 2003, you may still be receiving an increase for a dependent child. This addition is not taxable.

If you have been receiving Carer’s Allowance since before 6 April 2010, you may still be receiving an increase for a partner as part of your claim. This addition will be taxable.

These dependent additions are not available for new claims after these dates.

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When should I claim Carer’s Allowance?

Claim immediately

You should claim Carer’s Allowance straightaway if the person you care for is getting one of the benefits mentioned above.

You can claim Carer’s Allowance as soon as the person you care for has been awarded one of the benefits.

Claim later

You should wait before claiming Carer’s Allowance, if the person you care for has either:

  • not yet claimed one of the benefits shown above; or
  • claimed but is waiting for a decision.

Entitlement to Carer’s Allowance can be backdated for up to three months. It can be backdated more than this if the person you look after has been waiting to hear about their benefit claim. You must claim within three months of the date of the decision on their disability benefit claim. If you do this, your Carer’s Allowance claim should be backdated to the date their benefit is paid from provided you meet the other conditions for that period.

If you do not claim Carer’s Allowance within three months of the decision to pay the person you care for a qualifying benefit, you may lose money.

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How do I claim Carer's Allowance?

What information do I need to make a claim?

Make sure you have the following information about you, your partner and the person you care for before you apply:

  • details of benefits received
  • National Insurance numbers
  • personal details, including dates of birth and addresses
  • time spent abroad, in education or in employment
  • dates and times when your caring was less than 35 hours a week
  • bank or building society details.

How do I apply for Carer's Allowance?

You can apply for Carer’s Allowance online using the ‘Carer's Allowance service’ on the GOV.UK website. Alternatively, you can print off and fill in a DS700 form or a DS700SP form if you get a state pension and send it to the Carer’s Allowance Unit. Or you can ask the Carer’s Allowance Unit to send you a printed form to fill in.

It is important to enter the correct date you want to claim Carer's Allowance from.

When will I hear about my claim?

You should expect your claim to take around three weeks to be processed.

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What if my circumstances change?

You must report any change in your circumstances if you are getting or have applied for Carer’s Allowance. Changes that you must report include if you get a job, take a break from caring for someone or stop being a carer altogether.

If you stop looking after the person for a short time only, you may still be able to get Carer’s Allowance. For example, you may be able to get Carer’s Allowance if you, or the person you look after, go into hospital.

You must report any week when you look after someone for less than 35 hours. For Carer’s Allowance, a week runs from the start of a Sunday to the end of the next Saturday.

You can report changes online using the ‘Carer's Allowance service’ on the GOV.UK website. Or you can contact the Carer’s Allowance Unit.

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What is Carer’s Allowance Supplement?

The Scottish Government, in recognition for the immense contribution that carers make to our society, plan to use their new social security powers in 2018 to provide an additional payment to those in receipt of Carer’s Allowance who live in Scotland. The Scottish Government believe it is unfair that people in receipt of Carer’s Allowance receive the lowest level of support of any working age benefit and through the Carer’s Allowance Supplement will raise the level of Carer’s Allowance to that of Jobseeker’s Allowance (£73.10 from 6 April 2018). The Carer’s Allowance Supplement will be paid as a six month lump sum payment twice yearly to those who are entitled to Carer’s Allowance on a date set by the Scottish Government.

The payment will be made separately to Carer’s Allowance and will, like Carer’s Allowance, be taxable although it will not count as income for tax credits or other benefits.

Further information can be found on the website of the Scottish Government.

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What is Carer’s Credit?

If you are a carer claiming Carer’s Allowance, you should automatically be credited with Class 1 National Insurance contributions (NIC). If you’re not on Carer’s Allowance or are not already getting NIC credits with another benefit) then you may be able to claim Carer’s Credit. This is a National Insurance credit for carers under state pension age and it helps to protect your future entitlement to the basic elements of the state pension and bereavement benefits by providing you with Class 3 National Insurance credits.

To qualify for Carer’s Credit you must be providing care for one or more people for a total of 20 hours or more each week and the person you are caring for must be in receipt of certain disability benefits. You can find detailed information about standalone Carer’s Credit on our website.

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How does my claim affect other credits and benefits?

Even if you, or your partner, get other benefits or entitlements, you can still claim Carer’s Allowance. You should get some advice from a welfare rights specialist at a local advice agency before claiming so you understand the impact on your benefits. 

Carer’s Allowance counts as income for tax credits and as unearned income for universal credit.

Underlying entitlement

You cannot normally get two income-replacement benefits paid together, for example, Carer’s Allowance and the state pension. If you cannot be paid Carer’s Allowance (even though you are eligible) because of this rule, you have ‘underlying entitlement’ to Carer’s Allowance instead.

If this is the case, you might get extra amounts in some of your other benefits, rather than getting Carer’s Allowance. You should therefore still apply for Carer’s Allowance even though you may not receive any payments. 

If you get any of the following benefits you may not be able to get Carer’s Allowance:

  1. State Pension
  2. Incapacity Benefit
  3. Severe Disablement Allowance
  4. A training allowance
  5. Unemployability Supplement – paid with Industrial Injuries
  6. Disablement Benefit or War Pension
  7. Widow’s Pension or Bereavement Allowance
  8. Widowed Mother’s Allowance or Widowed Parent’s Allowance
  9. War Widow’s or Widower’s Pension
  10. Maternity Allowance
  11. Industrial Death Benefit
  12. Contribution-based Jobseeker’s Allowance
  13. Contribution-based Employment and Support Allowance.

If you cannot get Carer’s Allowance because you are getting one of these benefits, you may still be able to get extra money. The extra money may be added to Pension Credit – called the extra amount for caring, Jobseeker’s Allowance, Income Support and income-related Employment and Support Allowance (called Carer Premium) or universal credit carer element (although if you are getting Housing Benefit or a reduction in your Council Tax, extra money may be included when the local authority work out how much benefit you can get). These interactions can be complicated and so you should speak to a welfare rights specialist at a local advice agency such as Citizens Advice before you claim Carer’s Allowance.

If the amount of benefit you get is less than the amount of Carer’s Allowance you could get, you can claim Carer’s Allowance and you will receive the difference.

If you get any Widow’s Benefit or Bereavement Benefits, you should claim Carer’s Allowance anyway, because this may mean you get National Insurance credits.

Person you are caring for

The person you are looking after may be getting extra money with their benefit if they are severely disabled and getting any of the following benefits:

  • Income-based Jobseeker’s Allowance
  • Income Support
  • Employment and Support Allowance
  • Pension Credit
  • Housing Benefit.

This extra money is called severe disability premium or the addition for severe disability.

If you are paid Carer’s Allowance for looking after them, this extra money will stop. The person you are looking after cannot get severe disability premium if you are getting Carer’s Allowance.

This could affect any reduction in Council Tax they may be entitled to.

If you have only underlying entitlement to Carer’s Allowance and are not actually paid it, the person you look after will still get any extra money they are entitled to.

Other people, including your partner

If someone else is receiving an increase of benefit in respect of you, for example, an adult dependency increase payable with incapacity benefit, their dependency increase will be adjusted to take account of any Carer’s Allowance payable to you. Generally speaking the dependency increase will no longer be payable.

State pension deferral

Putting off claiming your state pension is also known as state pension deferral. Days for which you are paid Carer’s Allowance will not count towards extra state pension or the lump sum payment you could get when you do claim your state pension.

For more help and information, you should contact the Pension Service or look at their detailed guide about state pension deferral.

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What is my tax position as a carer?

If you are a full-time carer, you may not be in paid employment or self-employment, due to your caring responsibilities. This does not mean that you do not have to pay tax. If you have taxable income from other sources, such as from taxable benefits (including Carer's Allowance and the Carer's Allowance Supplement (in Scotland only)) or investments, and it is more than your tax-free personal allowance, you will have to pay tax.

Our website has a comprehensive 'tax basics section' that explains the basics of the tax system which you may find useful to help understand your obligations and responsibilities.

Carer’s Allowance

If you receive Carer’s Allowance, it is important to be aware that it is taxable benefit – but no tax is taken off when you receive it.

On its own, it is below the threshold for paying tax (£11,850 for most people in 2018/19, which works out at about £228 per week or £987 per month).

However where your other sources of taxable income (such as from investments or a pension for example) PLUS the Carer’s Allowance, mean that you go over the £11,850 threshold, then you will have to pay tax on it.   

The way you pay any tax due on your Carer’s Allowance depends on what other sources of income you have. If you have a source of income where tax is collected under the PAYE system, like a pension, then HMRC will ask your pension payer to collect any tax due on your Carer’s Allowance at the same time. They do this by adjusting your tax code to take account of the benefit. For more information on how tax codes work, see our guidance in the ‘tax basics section’.

HMRC should check the total amount of tax you have paid at the end of the tax year via the P800 process. If it is too much they will give you a refund. If it is too little they will usually try and arrange a suitable method of payment with you.

If you do not have a source of income where tax is collected under PAYE, e.g. if your only other income is from bank interest or dividends, then you may have to complete a tax return under self-assessment to pay any tax that you owe on the Carer’s Allowance. 

As noted above, the new Carer’s Allowance Supplement in Scotland will also be taxable.

Completing a starter checklist if you receive Carer’s Allowance

If you are about to start a new job yet do not have a P45 from a previous employment to give to your new employer, you need to help your new employer understand what tax code to use by completing a starter checklist.

You are asked which statement applies:

  • This is your first job since last 6 April and you have not been receiving taxable Jobseeker's Allowance, Employment and Support Allowance, taxable Incapacity Benefit, state pension or occupational pension.
  • This is your only job, but since last 6 April you have had another job, or have received taxable jobseeker's allowance, employment and support allowance or taxable incapacity benefit. You do not receive state or occupational pension.
  • You have another job or receive a state or occupational pension

As stated above, Carers Allowance is a taxable benefit – but it is not specifically mentioned alongside the other taxable benefits listed in the starter checklist. This can lead carers to tick box A rather than box B. It is important to understand that while ticking box A can lead to you being given the benefit of the full tax free personal allowance to set against your employment earnings, this may mean that you have an underpayment in respect of the Carer’s Allowance at the end of the tax year.   

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Where can I find more help and information?

England, Wales and Scotland

You can find out more information about Carer’s Allowance by looking at the detailed forms DS700 and DS700SP.

There is also detailed information in the claim notes for Carer’s Allowance on the GOV.UK website.

You can also contact the Carer’s Allowance Unit.

Northern Ireland

This page refers to the rules that apply in England, Wales and Scotland. There is an equivalent benefit in Northern Ireland, with similar rules and claim form. You can find more information on the nidirect website.

Carers UK

Carers UK is a charity that helps various types of carers. They provide information, advice and support for carers. You can visit their website for more information, including details of their telephone advice line. They also provide details of local contacts to support carers.

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