⚠️ We are currently updating our 2020/21 tax guidance across the website
Issues facing paid care workers
Disabled people and carers
Care workers do a vital but difficult job. Yet they can face some challenges in the tax and benefit system, often due to their travel patterns. Read the answers to some frequently asked questions below, for an outline of the main issues and help with what to do if you are affected by them.
Zero-hours contracts occur when a person agrees to be available for work as and when required but has no guaranteed hours or times of work. Their use for care workers helps the home care providers manage peaks and troughs in demand.
If you are on a zero-hours contract, you will usually have the employment status of 'worker' (at least). This means that in theory you should be entitled to the minimum set of statutory employment rights, such as the minimum wage, holiday pay, a workplace pension, rest breaks and protection from discrimination.
Further, being paid under the Pay As You Earn system (as most care workers are) provides a ‘secondary contributor’ (that is, someone who is liable to pay Class 1 secondary National Insurance contributions) and means that you may be able to receive statutory sick pay (SSP) and parental pay from your employer if you satisfy all relevant qualifying conditions – although it is worth noting that this includes an earnings condition – for example, average weekly earnings (usually calculated over the previous eight weeks) should meet the Lower Earnings Limit (£120 per week in 2020/21).
In response to concerns about the use of zero hours contracts, the government issued some guidance to employers. Although this is aimed at employers, it will be useful for workers too to help them understand their rights.
If you have any concerns about being on a zero hours contract, you could contact ACAS which is a free, confidential helpline to ask for advice on what to do next.
If I’m on a zero hours contract, do I get holiday pay?
All care workers who are classified as employees or workers are entitled to holiday pay.
The minimum holiday entitlement under law is 5.6 weeks per year – this equates to 28 days for a person working a five-day week.
One method of calculating paid leave for those working irregular hours, such as zero-hours contract workers, is to base entitlement on 12.07% of the hours worked (using the statutory minimum leave period of 5.6 weeks).
Example: Mary starts a new job and works 17 hours one week, 20 hours the next week, and then 15 hours for next two weeks. After a month of working, she has built up entitlement to approximately 8 hours of paid leave (67 hours x 12.07%).
If she usually earned £9 an hour, she would be entitled to £72 (eight hours x £9) when she took her leave. From 2020/21, holiday pay is calculated based on your average pay rate in the preceding 52 weeks that you have worked, including bonuses, overtime, commission where relevant. If you have not been in employment for long enough to build up 52 weeks’ worth of pay data, your employer should use however many complete weeks of data they have.
Holiday pay is a complex and ever changing area of law. A recent case has muddied the water yet further (in this case, the Court of Appeal ruled that it was not correct for an employer to base a zero hour contract teacher’s holiday pay on 12.07% of the term's accrued earnings at the end of each term), however this judgement is in the context of a ‘part-year’ worker and in any case, may be appealed.
You can find more information about holiday entitlement and how it should be calculated for workers with irregular working patterns on GOV.UK. Guidance on how to calculate holiday pay for workers whose hours and / or pay are not fixed can also be found on GOV.UK. If you are unsure as to whether your employer is dealing with your holiday correctly in your particular circumstances, you could seek further clarification as to your position from ACAS.
Many home care workers are not paid for their travel time – this can sometimes cause problems with the national minimum wage/national living wage. There are two aspects of this to consider:
Travel between home and work
It is not a requirement under minimum wage law for a care worker to be paid for their travel from home to a place of work, nor their associated out of pocket expenses such as vehicle mileage. This is despite the fact that client demand may mean that you have a fragmented rota and with long gaps spent at home.
Interestingly, if you were to travel to the office to sit out a break rather than going home then the amount of time travelling to and from the office would count (although the time spent ‘resting’ there would not).
There are some useful examples looking at care workers and travel time/resting time on GOV.UK.
You may be interested to read our recent report in which we highlight this problem and call for a change in the rules.
Travel between appointments
It is not unlawful for care workers to have their travel time between appointments unpaid, so long as their total pay averages out at or above the appropriate minimum wage rate once travel time is factored in. This is probably best explained by way of an illustration:
Alison, 27, is paid weekly at £9.60 per hour. One week, her employer pays her £288 for 30 hours work (30 x £9.60). She spent three unpaid hours that week travelling between clients. The minimum amount paid to her should be the National Living Wage (NLW) hourly rate of £8.72 x 33 hours = £287.76. As she was paid above £287.76 (i.e. above the NLW amount), no arrears are due even after taking account of the additional 3 hours unpaid working time.
The next week, she got paid the same amount (£288) but spent five unpaid hours travelling between clients. The minimum amount paid to her should be £305.20 (£8.72 x 35). She has been underpaid by £17.20.
We can see that care workers who receive lower pay rates per hour are more at risk of being underpaid when travel time is factored into the minimum wage pay calculation.
In addition, where a care worker incurs costs in connection with their employment that are not reimbursed by the employer, including expenses for travel between appointments, these reduce the worker’s pay for minimum wage purposes.
So if, in the first part of the example of Alison above, she incurred £20 of travel costs for those three hours of travelling, her pay would be taken to be £268. When we compare this to the bare minimum she should have received, £287.76, she has been underpaid. In fact, any more than 24p of unreimbursed costs for those three hours of travelling would constitute a breach of the minimum wage rules (that is, £288 less £287.76).
For minimum wage purposes, we understand that where care workers are using their own cars to travel to between clients, ‘costs’ are probably limited to actual petrol expenses rather than including any contribution towards wear and tear or other vehicle related expenses.
If you think you are not being paid the minimum wage, you should talk to your employer in the first instance. If this makes no difference, or you are still confused about your situation, you can seek advice from the ACAS Pay and Work Rights helpline who will investigate your case and complaint in the strictest of confidence, taking action against the employer as necessary and demanding any arrears due to you.
For more information on how the minimum wage should be calculated, including how the accommodation offset works and how things like training, tips and uniform deductions should be dealt with, please see our website.
If you are paid more than the minimum allowed by law, then whether your travel time and costs are paid/reimbursed is a matter for negotiation between you and your employer. You should check any contractual terms and conditions you sign up to, very carefully.
Yes – for tax purposes, many care workers will be able to deduct all their travel costs from their taxable income, including from home to work. However, you will need to have paid some tax to get tax relief – more on this below.
Under the tax rules on travel expenses, a deduction for your travel costs are allowable for tax purposes if:
- You have to make the journeys in the performance of the duties of your employment (this may apply where the duties themselves inherently involve travelling such as a delivery driver or meter reader); or
- They are journeys which you make to or from a place you have to attend in the performance of your duties, which can include trips from your office or other work location to visit a customer or other workplace. This rule can also include travel directly from your home to visit a customer or to another workplace (unless the journey is practically the same as the journey from your home to your normal place of work, for example, because the customer lives near your office).
You can find more information in HMRC’s manual. Arguably, many care workers will be able to deduct all their travel costs (including from home to work) from their taxable income under the first rule, because like a ‘service engineer who moves about from place to place during the day, carrying out repairs to domestic appliances at client’s premises’ (wording taken from the manual) their duties inherently involve travelling. Even if you do not have a travelling appointment it is likely every place that you attend is a temporary workplace, which means that relief should be due under the second rule.
Where the rules apply to a journey, and you incur rail, bus, and other transport charges, to the extent they are not fully reimbursed by your employer they can be claimed as a tax deduction.
If you use your own transport for such journeys there is the statutory system of tax-free approved mileage allowances for business journeys available. If your employer pays less than these amounts, you can claim tax relief for the unused balance of the approved amount (this is known as the Mileage Allowance Relief (MAR) system).
|Vehicle||Mileage in tax year||rate per mile|
|Cars and Vans||Up to 10,000 miles||45p|
|Excess over 10,000 miles||25p|
The mileage rate covers the costs of running and maintaining the vehicle, such as fuel, oil, servicing, repairs, insurance, vehicle excise duty and MOT. The rate also covers depreciation of the vehicle.
Even if you meet the rules, you need to make sure you have paid enough tax to get tax relief. In 2020/21, you will pay tax on your earnings over £12,500. In other words, if your income is less than £12,500 you will not be able to get any tax relief on travelling expenses that are not reimbursed by your employer.
Josie earns £13,000 in 2020/21. After the personal allowance is deducted, she will have taxable income of £500, which at 20% means that she will pay £100 tax. She has qualifying expenses of £100 which she has paid for from her salary. By putting in a tax claim for this, she will not get the £100 back from HMRC, but will get the tax back that she has paid on the £100. As she has paid tax at 20%, this will be £20. Even though she will also have paid 12% National Insurance on the £100, there is no National Insurance relief available.
If Josie’s expenses were £600, her tax claim would be restricted to £500 and her refund restricted to £100.
To get tax relief, you have to make a claim to HMRC, but it is not that difficult. If you do not usually have to complete a tax return, a claim can be made on form P87.
There are plenty of organisations which offer to make the claim for you, but they will take a fee from any repayment you get.
Where the amount of employment expenses exceeds £2,500, then the tax refund claim must be made through the completion of a more formal Self Assessment tax return.
Do my costs get recognised for tax credits/universal credit?
A person’s entitlement to working tax credit is based upon his/her level of taxable earnings – against which permitted tax deductions are taken. Permitted deductions can include travel expenses that you are entitled to tax relief for.
This means that where £50 of a care worker’s £275 weekly earnings are attributable to travelling expenses, they will have an annual income for tax credit purposes of £11,700 (£225 x 52), rather than £14,300 (£275 x 52), potentially meaning a higher tax credit award.
For tax credits, employment expenses are deducted from income if they are allowable for tax, even if full effect cannot be given to them for tax purposes because the worker does not earn sufficient to incur a tax liability.
A similar rule applies for universal credit.
For example, if a care worker does 10 miles travelling a day for work, for say, 46 weeks a year, and her costs are unreimbursed by her employer, then her Mileage Allowance Relief claim would be £1,035 (10 x 45p x 5 days x 46 weeks). This means her earnings for universal credit purposes in each monthly assessment period could be reduced by £86.25 (£1,035 divided by 12). Universal credit's ‘taper rate’ of 63p in the pound means that a £86.25 deduction could result in a £54.33 increase in her univesal credit award depending on her level of award and circumstances.
However, you should be aware that both tax credits and universal credit can use earnings information received by HMRC from employers to set awards, which does not include unreimbursed expenses amounts. You will therefore need to provide tax credits/universal credit with revised earnings amounts.
You can find more information on how to do this for tax credits on our specialist site, RevenueBenefits
The exact route that universal credit claimants need to take to get their expenses deducted is currently unclear – we recommend that you call the universal credit helpline (for more information see GOV.UK) or contact the universal credit service centre via a note in your journal.
Why is my unpaid travel time not counted for tax credits?
Working tax credit (WTC) is payable to claimants who are in ‘qualifying remunerative work’ and who are on a low income. There are certain age and hours of work qualifications. Briefly, the conditions are:
- If you are single and responsible for a child, qualify for the disability element of WTC, or are 60 years old or over, you must work at least 16 hours per week.
- If you are a couple and responsible for a child you must, in most cases, work at least 24 hours between you (with one of you working at least 16 hours). If your partner is incapacitated, in prison, in hospital or entitled to carer’s allowance then you can qualify if you work at least 16 hours.
- Otherwise, you must be aged 25 or over and work at least 30 hours a week.
Qualifying remunerative work is work for which the claimant is, or expects to be, paid. There is an issue for care workers here: if your employer does not pay you directly for your travel time (even if your overall remuneration at least equals the minimum wage) then it is not paid work for tax credits and your weekly remunerative hours may be insufficient to meet the minimum WTC requirement.
If you are in this situation, you could try talking to your employer about making changes to your terms and conditions.
You may be interested to read our report in which we highlight this problem and call for a change in the rules. If you are interested in making representations to government on this issue, you may want to consider raising this issue with your MP.
What if my hours change week by week – how does this impact tax credits?
If your weekly hours of paid work change this can affect entitlement to working tax credit (WTC), as there are rules about how many hours you have to work to qualify. However, the working hours rule in tax credits depends on the hours of work you normally do per week and so, often, fluctuations of a few hours week by week will not make a difference as long as you normally continue to work the minimum required for your circumstances. If things change significantly so that your normal weekly hours of paid work change, you will need to tell HMRC as this could affect your award.
You may be entitled to more money if your hours increase and you start to normally work at least 30 hours a week, or your WTC may reduce or stop if you reduce your hours below one of the thresholds. Note that while your income, as well as your hours, may fluctuate, the disregard system provides some cushioning for tax credits purposes, meaning that your income can rise or fall by £2,500 compared to the previous year before your tax credits are changed in the current tax year.
You may be interested to read our report in which we look at how the tax credits system copes with fluctuating hours and incomes. Universal credit (UC) is gradually replacing tax credits. Unlike WTC, for UC, you do not need to work a minimum number of hours to qualify but there may be a minimum amount that you are expected to earn.
I have fluctuating earnings, how does auto-enrolment apply to me?
Your income may vary, but if at any point, you earn more than the eligibility threshold for your pay period (£10,000 per annum, £192 per week, £833 per month), your employer should auto-enrol you at that time (or after three months if they have decided to postpone you).
Once you have been enrolled, and assuming you do not opt out, your employer will then calculate pension contributions each time you are paid, in accordance with a set percentage (in 2020/21, this is usually 5%, or 4% if you are eligible for tax relief). The percentages only apply to qualifying earnings over £6,240 (or the appropriate amount for your pay period). If your income fluctuates, this may mean that in some pay periods you could earn enough for there to be pension contributions, and in other pay periods you will fall short and there will be none.
Having said all that, if you are underneath the official entry point, you can still ‘opt in’ to auto-enrolment if you want to – and get an employer contribution. Further, most pension schemes will allow workers to contribute more than the minimum they need to under law, either by increasing their contribution by a set percentage or by making an ad hoc contribution – thus allowing care workers who can afford it, to build better pension savings.
You can read more about auto-enrolment in the employment section.
Do my pension contributions get recognised for tax credits/universal credit?
It may be useful to know that the cost of pension contributions may be lower than you think if you are on tax credits or universal credit (UC). This is because in the calculation of tax credit and UC income, employees may deduct 100% of pension contributions (if they haven’t already been deducted). This means that a higher tax credit or UC award might result from the deduction of employee pension contributions from assessable income. For example, UC’s ‘taper rate’ of 63p in the pound means that a £100 pension contribution could result in a £63 increase in your UC award depending on your level of award and circumstances.
I’m not earning enough to pay National Insurance (NIC) – will this affect my contributions record?
If you earn above the ‘Lower Earnings Limit’ in your job (£120 per week for 2020/21), but below the NIC threshold of £183 per week, you are credited with NIC, even though you do not have to actually pay NIC. These credits count for your contributions record (for state pension, and other contributions based benefits).
If you do not earn at least the lower earnings limit in your job, you will not have get any NIC credits. If this is the case and you do not get credits for any other reason (for example, because you are claiming child benefit) you may want to consider making Class 3 voluntary NIC payments to help protect your contributions record.
These are quite expensive, so before committing yourself, you should consider if it is necessary to make them in light of how many qualifying years you already have under your belt/your future potential to make up any ‘gaps’.
You should consult the NIC office or contact the Future Pension Centre to get an indication of your likely pension at retirement age. You can also check your state pension through HMRC’s new Personal Tax Account facility.
You can find out more about NIC credits and making voluntary contributions on our website.
I heard you have a special care worker factsheet?
Yes, our Pay and tax issues facing care workers factsheet offers information and guidance on a number of areas in which care workers are likely to face issues, including:
- Whether travel time counts as hours worked for minimum wage purposes
- Deductions that can be made when working out pay for minimum wage purposes
- What happens for minimum wage purposes if an employer pays differing rates for contact time and travel time or if calls are cut short or overrun
- What to do if you are being underpaid the minimum wage
- How minimum wage arrears are treated for tax and National Insurance purposes
- Whether tax relief is available for unreimbursed costs incurred by care workers
- How working tax credit and universal credit works for care workers
It also includes helpful ‘real-world’ worked examples and links to more help.
We hope that this factsheet will make a real difference to care workers and that in time it will lead to better employer practices within the sector.
If you are a care worker and find the factsheet useful, please do share the factsheet amongst your colleagues. If you feel it would be beneficial for LITRG to expand on any of the areas covered or if you do not think we have covered what you wanted to know, or would like to tell us of your experiences so we might learn and try and get things changed, please do contact us.