Tax and benefits for carers

Updated on 13 July 2021

Disabled people and carers

On this page we look at carer’s allowance (and related tax issues).

Illustration of a man next to a clipboard and calculator

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.

⚠️ 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, including universal credit (UC). 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 before you make a claim.

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 (2021/22) is £67.60 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) – to be eligible your earnings (averaged in some cases) must be £128 or less a week after tax, national insurance and certain expenses.

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.

Am I eligible to claim carer’s allowance?

Claimant conditions

If you get other benefits

If you get certain other benefits and they pay you £67.60 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. This is called the 'overlapping' benefits rule. You can find out more on GOV.UK.

What is the earnings threshold?

One of the conditions for carer’s allowance is that you must not earn more than £128 a week (in 2021/22). This includes money from employment and self-employment, for example, if you have a part-time job. Money you get from a private or occupational pension, however, is not counted as earnings. 

The DWP has the discretion to average your earnings over a five-week period, or a ‘recognisable cycle of work’ if you have one.

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 £128 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

⚠️ You should consult a welfare rights specialist if you are thinking about making changes to keep your carer’s allowance, especially if you are in receipt of other benefits like tax credits, universal credit or any other means-tested benefits.

You may consider cutting your working 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 other things like working tax credit or help with childcare costs like 30 hours free childcare.

If you pay into a pension or have other expenses, it may be possible to deduct these to bring you under the £128 a week threshold.


Example

Zara, a single parent, cares for her disabled mother for at least 35 hours a week and receives carer’s allowance of £67.60 a week in addition to child benefit and child tax credit.

She finds suitable employment for 16 hours a week at £8.91 an hour (£142.56 a week). But because she now earns more than £128 a week, she is no longer entitled to carer’s allowance.

Alternatively, Zara may be able to make deductions in the calculation of her earnings to bring her under the £128 threshold for carer’s allowance. If, for example, Zara contributed £32 into a pension, she would be able to retain her carer’s allowance.

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 due to the way carer’s allowance interacts with other benefits such as tax credits and universal credit.


Making pension contributions

If you are employed and want to make pension contributions to reduce your earnings for carer's 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.

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.

What is carer’s allowance supplement?

The Scottish Government use their social security powers to provide an additional payment to those in receipt of carer’s allowance who live in Scotland. The Scottish Government have opted to raise the level of carer’s allowance to that of jobseeker’s allowance (£74.70 from 6 April 2021). 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.

In the 2021/22 tax year, there will be two rounds of payments. The first will be paid in June 2021 for people getting carer’s allowance on 12 April 2021. The second will be paid in December 2021 for those getting carer’s allowance on 11 October 2021.

The payment will be made by the Scottish Government 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. The payments should be automatic, there is no need to make a claim. If you are due a payment, you should receive a letter telling you the exact date it will be paid.

⚠️ In response to the coronavirus, the Scottish Government made an additional payment of carer’s allowance supplement to carers who were eligible for the June 2020 payment. This meant that people living in Scotland and in receipt of carer’s allowance on 13 April 2020received a total payment of carer’s allowance supplement of £460.20 in June 2020.

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 are not getting carer’s allowance or are not already getting National Insurance 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.

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 other benefits.

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

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.

1. 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. Also you may be entitled to national insurance credits, even if you don’t get any actual payment of carer’s allowance in some cases.

️ 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.

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.

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 at the point you receive it.

On its own, it is below the threshold for paying tax (£12,570 for most people in 2021/22, which works out at about £241 per week or £1,047 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 £12,570 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, for example 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.

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 GOV.UK.

You can also contact the Carer’s Allowance Unit.

For information about carer’s allowance supplement, visit the Scottish Government website.

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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