Incapacity Benefit

T.C.

Incapacity benefit is taxable, yep fine. However, my client seems to think that because she has been on this since 1991 then it is not taxable for her. I can find no information relating to this. Anyone have any knowledge of this??

mike1983

I don't know whether this applies. I've simply copied and pasted it from HMRC website...


Incapacity benefit (IB) is a social security benefit payable to those who are incapable of work because of illness or disability. IB is taxable except:

•where IB is payable to a person who was entitled to invalidity benefit prior to 13 April 1995 (when incapacity benefit replaced invalidity benefit) provided the benefit is in respect of the same period of incapacity. (However, if the person was entitled to Sickness Benefit prior to 13 April 1995 then the IB became taxable when that person started to receive the short-term higher rate of IB.) The DWP may ignore short periods of work when determining a period of incapacity, but if a period of work is not ignored, so a recipient who had a period of incapacity before 13 April 1995 starts a new period of incapacity after that date, the IB will be taxable after 6 months under the normal rules.

Here is the link
http://www.hmrc.gov.uk/manuals/eimanual/EIM76180.

Hope this helps.

T.C.

Thank you. I did look at that page, but it made no sense to start with. Now I can see where they are coming from. Thank you Mike.

mike1983

No problem.

HMRC's website hurts my head at times.

PGM

Is it taxable then?

That section is too painfull to re-read

T.C.

Incapacity benefit is usually taxable, yes. However, because this claim started prior to 1995 (1991 in fact) and was originally the Invalidity Benefit, it is not taxable.

mike1983

My impression was that it's not taxable. It says incapcity benefit is taxable except if a person was on the old invadility claim (now IB) prior to 1995. It must still be the same claim they originally started with for it not to be taxable.

PGM

Very interesting!

I wonder how many people are having their benefit wrongly treated for tax..

T.C.

mike1983 wrote: »

My impression was that it's not taxable. It says incapcity benefit is taxable except if a person was on the old invadility claim (now IB) prior to 1995. It must still be the same claim they originally started with for it not to be taxable.

No, I think if you check, it is the other way around. Confusing I know.

mike1983

I'm confused now because, looking back, I have basically made the same point as you

T.C.

Sorry, I am set to confuse everyone today....including myself. IB is usually taxable, but not in this case because it began prior to 1995. Does that clarify it?

mike1983

Yes it does. I blame HMRC's crystal clear website :001_tt2:

T.C.

Oh yes, me too!