Tax and benefits for carers

What is my tax position as a carer?

If you are a full-time carer, you may not be in paid work, 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.

The likelihood of having to pay tax in any one tax year if you are a carer increases if you are able to do a little work alongside your caring duties or if you start or stop full time work because your caring duties have started or stopped.

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, you need to know that it is a 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 2023/24, which works out at about £241 per week or £1,047 per month).

However, where your other sources of taxable income in the year (such as from work, 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 some of your total taxable income.

The way you pay any tax due 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 some pensions, then HMRC may 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 employment 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.

As noted below, the carer’s allowance supplement in Scotland is also taxable.

Completing a starter checklist if you receive or have received carer’s allowance

If you are about to start a new job but 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. (Box A)

• 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. (Box B)

• You have another job or receive a state, works or private pension. (Box C)

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. It is important to understand that ticking box A can lead to you being given the benefit of the full tax-free personal allowance to set against your employment earnings, which may mean that you have an underpayment in respect of the carer’s allowance at the end of the tax year. If you are unsure which box to tick, you should contact HMRC for advice.

Example

Ann looks after her mum who has dementia. She is in receipt of carer’s allowance of £76.75 per week until October 2023 when Ann’s brother takes over the bulk of Ann’s caring duties so that Ann can return to work.

Her new job pays her £2,000 a month. Ann completes the starter checklist and certifies that this is her first job (in the 2023/24 tax year) and that she has not been receiving any of the state benefits listed on the starter checklist.

As a result of Ann ticking box A, Ann’s new employer will operate the standard tax code (1257L – giving Ann the full personal allowance of £12,570) on a cumulative basis. This means that Ann will get the benefit of any unused personal allowance from the beginning of the tax year to set against her employment earnings. As such, her employer will withhold no income tax.

Ann receives a P800 tax calculation that shows an amount of tax due:

Employment income (£2,000 x 6) £12,000

Carer’s allowance (£76.75 x 26) £1,995.50  

Total £13,995.50

Personal Allowance (£12,570)

Taxable income £1,425.50

Tax due at 20% £285.10

Tax paid under PAYE (£0)

Tax due £285.10  

What benefits can I claim as a carer?

The main benefit for carers, who spend at least 35 hours a week caring for someone else, is carer’s allowance.  In Scotland, you may be entitled to carer’s allowance supplement in addition to carer’s allowance. Both carer’s allowance and carer’s allowance supplement are taxable benefits. However, although carer’s allowance counts as income for tax credits and other benefits, carer’s allowance supplement does not.

You can read about the eligibility conditions for carer’s allowance on GOV.UK. You can also find out how to claim. The 23/24 rate of carer’s allowance is £76.75 a week.

You can read more about the eligibility conditions for carer’s allowance supplement on mygov.scot.

Some people may qualify for carer’s allowance but may not receive it. This is because it is classed as an income-replacement benefit and you cannot normally get two income-replacement benefits paid together, for example carer’s allowance and the state retirement pension. If you qualify but cannot get carer’s allowance because of this rule, you have an ‘underlying entitlement’ to carer’s allowance instead.

Certain benefits, such as universal credit and pension credit, have carer elements or premiums. These are paid as additional elements if you have caring responsibilities and meet certain conditions. If you receive carer’s allowance, this will usually be treated as income when calculating other benefits.

⚠️If you are a carer, you should seek specialist welfare rights advice to understand whether you can/should claim carer’s allowance, carer elements in other benefits or potentially both.

⚠️If the person you are caring for receives certain benefits, the amount they receive may be affected if you claim carer’s allowance or the carer elements of other benefits. It is important that both you and the person you care for understand the potential consequences of your claim for carer’s allowance.

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

What is the earnings threshold?

One of the conditions for receiving carer’s allowance is that you must not earn more than £139 a week (in 2023/24). 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. If you have other types of income, you should contact the DWP's carer's allowance unit to see whether it is taken into account.

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 to 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.

Our understanding is that 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.

You should contact the DWP carer’s allowance unit to confirm if your expenses are allowable deductions.

If your earnings after deductions vary, you may still be able to claim carer’s allowance for the weeks when they are below the £139 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.

Making pension contributions

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

If you are 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.

If you are self-employed, then you can find information on setting up a pension on the MoneyHelper website.

Example

Zara, a single parent, cares for her disabled mother for at least 35 hours a week and receives carer’s allowance of £76.75 a week in addition to child benefit and child tax credit.

She finds a job working 16 hours a week at £10.42 an hour (£166.72 a week). Zara joins her employer’s pension scheme and pays in £60 a week. This means her earnings are under the £139 threshold for carer’s allowance because half of her pension contribution can be deducted when working out her earnings against the threshold.

As above, we recommend that claimants 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.

What is carer’s credit?

Carer’s credit is a National Insurance credit for carers under state pension age and it helps to protect your future entitlement to the state pension and bereavement benefits by providing you with Class 3 National Insurance credits.

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.

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 more information about carer’s credit on our website.

Where can I find more help and information?

England, Wales and Scotland

There is 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.