Does the remittance basis apply to tax credits?

Updated on 8 April 2018

Tax credits have their own rules about what is and what is not income. Other benefits also have their own rules which may not be the same as tax credits and tax. In this section we explain whether the remittance basis applies to tax credits.

The general rule for tax credits

If you claim tax credits you need to be aware that a remittance basis does not exist for tax credits, so effectively the arising basis is imposed, regardless of what basis of taxation is adopted.

This means that even if you use the remittance basis for tax purposes – foreign income and gains are only taxed in the UK when they are brought to, or 'remitted to' the UK –, you must declare your worldwide income for the purposes of tax credits.

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Where do I declare foreign income for tax credits?

When you claim tax credits, foreign income is entered under the ‘other income’ box on the claim form and renewal forms. However if the foreign income is employment income, trading income or certain investment income, it should be entered into those sections instead.

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What amount should I declare?

You should normally use the gross amount (before any tax is taken off) and the amount should be stated in pounds sterling (British Pounds), not the original currency. You can deduct the amount of any banking charge or commission paid when converting the currency.

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How do I convert the amount to pounds sterling?

When converting foreign income into pounds sterling, you should use the average exchange rate figure for the year the income relates to. For example, if the income is from 2018/19, use the average exchange rate for the year ended 31 March 2019. You will find the exchange rates on the GOV.UK website.

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Are there any exceptions?

Not all foreign income is counted for tax credits; there are a few limited exceptions. 

Therefore anyone with foreign income should seek advice to ensure that they are declaring the correct amounts. For those who require more detailed information about foreign income and tax credits, the HMRC manual provides full details of what counts as foreign income. You can find the manual on the HMRC website.

You can find out more about the remittance basis and arising basis on our page ‘how are foreign income and gains taxed?’.

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