Taxable and non-taxable income
Yesterday a client asked me about whether insurance payouts were a taxable income for her which got me thinking about writing a post on the less well known forms of taxable and non-taxable income as a quick reference guide for business owners. Some of these may surprise you….
Non-taxable income
You do not have to tell HM Revenue and Customs (HMRC) about income which is non-taxable.
The following types of income are non-taxable.
- Bereavement payment
- Child Benefit. (Unless one of you earn more than £50,000 in which case you’ll pay a “high income child benefit charge”)
- Child Tax Credit
- Cold Weather Payments
- Council Tax Reduction
- Disability Living Allowance
- Employment and Support Allowance (Income-related)
- Guardian’s Allowance
- Health costs, including eye tests, prescriptions, travel under the Hospital Travel Costs Scheme
- Housing Benefit
- Income Support, unless you are on strike when you claim
- Industrial Injuries benefits including Disablement Benefit, Reduced Earnings Allowance, Constant Attendance Allowance and Exceptionally Severe Disablement Allowance
- Universal Tax Credits
- War Disablement Pension, including allowances
- Winter Fuel Payments
- adoption allowances paid by a local authority or approved adoption agency
- Child Tax Credit
- childcare vouchers up to a value of £55 a week
- work-related training courses
- educational grants and student loans, including the parental contribution and scholarships
- foster care receipts
- hospital patients’ travelling expenses under the Hospital Travel Scheme
- housing grants from your Local Authority
- compensation or damages awarded for personal injuries whether received in one lump sum or over a period and whether awarded by a court or out of court settlement
- interest up to the time of judgment awarded by a court on compensation or damages for personal injuries
- jurors’ financial loss allowance, if the juror is an employee
- life assurance policies – certain bonuses and profits
- long service awards to employees after 20 years of service, where the gift does not exceed £50 for each year of service and where the gift is tangible, for example a clock or shares in a company. A cash award is usually taxable unless it is a one-off payment which is not included in your contract of employment
- maintenance payments received from a spouse or civil partner
- Disability pensions of members of the armed forces are tax-free. Any pension awarded to you as an employee on retirement because of an injury at work is tax-free
- lump sum pension payments (maximum 25% of the capital value up to a certain limit)
- compensation and interest for mis-sold personal pensions or PPI taken out between 29 April 1988 and 30 June 1994 inclusive
- insurance benefits paid to you if you are sick, disabled or unemployed to meet your financial commitments, for example, benefits paid under mortgage protection insurance, permanent health insurance, payment protection (creditor) insurance and long-term care insurance
- strike pay and unemployment pay from trade unions
- premium bond prizes, winnings from the National Lottery and football pools, and from betting for example, horse racing
- property income – the first £1,000 of income from renting out part of your property is tax-free, for example renting a parking space on your drive (this is separate to the Rent a Room)
- the first £30,000 of payments which are compensation for loss of a job, including statutory and contractual redundancy payments and, in certain cases, a lump-sum payment in lieu of notice.
Taxable income
These social security benefits and pensions ARE taxable and if you haven’t been taxed at source then they should be declared on your tax return:
- Bereavement Allowance
- Carer’s Allowance
- Employment and Support Allowance – contributory and youth
- Incapacity Benefit – except for the first 28 weeks
- Income Support paid to people who are on strike
- industrial death benefit pensions
- Jobseeker’s Allowance
- State Pension
- Widowed Mother’s Allowance
- Widowed Parent’s Allowance
- Widow’s Pension.
- gains on life insurance policies
- income from trusts and settlements
- profits from renting part of a property, property letting including second homes and from furnished holiday lettings. Rental income from lodgers up to a certain limit is entitled to tax relief under the Rent a Room scheme
If you are unsure whether income or allowances should go on your tax return then give HMRC a call on 0300 200 3310