Tax Credits: Understanding disability

Disability plays an important part in the tax credit system, but often it is one of the most difficult parts to understand. A claimant with disabilities may not necessarily be disabled for tax credit purposes. HMRC consider the disability element of tax credits as high on their list of areas where people make errors, indeed their own staff find it a difficult area to deal with. As a result much HMRC compliance activity is directed towards claims involving a disability element. This guide explains those parts of the tax credit system where having a disability may be relevant.

Disability element of Working Tax Credit

The disability element is significant. If a claimant doesn’t have responsibility for children, or is aged 60 or over, it means they can claim working tax credit by working at least 16 hours rather than 30. If the claimant is part of a couple and has responsibility for a child or children, it means they can continue to qualify for WTC by working at least 16 hours rather than 24 hours as required for most couples from 6 April 2012. It is also worth a considerable amount of money to low income claimants.

Tax Credits are calculated on a daily basis. To get the disability element, the claimant must meet all three conditions below for each day of their claim.

CONDITION 1: The claimant must work at least 16 hours a week

The disability element is only for those who are working. If the claimant is part of a couple, and one of them is disabled but not working, they won’t get the disability element included. If they both meet all three conditions, they will qualify for two disability elements.

CONDITION 2: The disability must place them at a disadvantage in getting a job

The meaning of this expression, in tax credits terms, is that they have one of a number of disabilities which HMRC have set out in a list. You can find that list on leaflet TC956 produced by HMRC. They must meet one of the descriptions on the list to pass this part of the test.

CONDITION 3: They must receive or have previously received a qualifying benefit

Regulation 9 WTC (Entitlement and Maximum Rate) Regulations 2002, contains several sub-sections (Cases A-G) which set out what constitutes a qualifying benefit. As shown below, there are several qualifying benefits, at least one of which they must be receiving now, or have received at some time in the recent past.

The benefits, and the rules for each, are set out below. The claimant doesn’t need to meet them all; as long as they meet at least one of the bullet points below, they will satisfy condition 3.

NB - 'Training for work' means training under certain statutory arrangements on a course whose primary purpose is the teaching of occupational or vocational skills. The claimant must attend for at least 16 hours a week.

They can also satisfy condition 3 by qualifying under Case E often called the ‘fast track’ rules. Although it is called the fast track, it requires them to be off work sick for quite a long time and be in receipt of certain benefits during that time to qualify.

To meet the fast track rules they must meet all three numbered points below:

  1. (a) on account of their incapacity for work, they received statutory sick pay, occupational sick pay, short term incapacity benefit payable at the lower rate or income support, for a period of 140 days where the last of those days fell within the previous 56 days or they have been credited with Class 1 or 2 National Insurance contributions for at least 20 weeks where the last of those weeks fell within the previous 56 days.

    OR

    (b) on account of their incapacity for work or having limited capability for work they received an employment and support allowance or any of the pay or benefits in paragraph (a) above, for a period of 140 days where the last day fell in the previous 56 days or they have been credited with Class 1 or Class 2 contributions on account of having incapacity or limited capability for work for a period of 20 weeks where the last of those weeks fell within the previous 56 days.
     
  2. The claimant has a disability that is likely to last for at least six months, or for the rest of their life if their illness is terminal and they are not expected to survive for six months.
     
  3. Their gross earnings have dropped by at least 20% following their disability, with a minimum reduction of £15 per week.

Severe disability element

This element is different to the disability element. Claimants can get this even if they don’t qualify for the disability element. This is because there is no requirement that the disabled person must work to get this element so if the worker has a partner who doesn’t work but meets the condition below, they will get the severe disability element included.

To qualify the claimant (or their partner) must receive the highest rate care component of disability living allowance (DLA), the enhanced daily living component of personal independence payment or armed forces independence payment (AFIP) or the higher rate of attendance allowance (AA). As it is part of WTC, at least one person must be working (although, unlike the disability element, the disabled person need not be the worker).

If they get the highest rate care component of DLA, enhanced daily living component of PIP or AFIP, or the higher rate of AA, but payment is suspended whilst they are in hospital, they will still qualify for the severe disability element.

Only the highest rate of the care component of DLA, enhanced daily living component of PIP, or the higher rate of AA, gives entitlement to the severe disability element. If they receive the care component of DLA at any other rate, or the mobility component, even at the higher rate, they will not qualify for this element. Similarly if they receive the standard care component of PIP or the mobility component, even at the enhanced rate, they will not qualify for this element.

If the claimant is part of a couple and both of them meet the conditions, they can get two severe disability elements included in their WTC claim.

Children and disability

There are two elements of child tax credit related to disability – the child disability element and the severely disabled child element.

A child or young person qualifies for the child disability element of CTC if:

A child or young person qualifies for the severely disabled child element if the care component of DLA is payable for them at the highest rate or abated while they are in hospital. They will also qualify if the enhanced daily living component of PIP or AFIP is payable or abated while they are in hospital.

Both elements can be paid together if the qualification criteria are met.

Backdating the disability elements

Normally initial claims for tax credits can be backdated up to a maximum of 31 days (93 prior to 6 April 2012). Changes of circumstances can generally be backdated up to a maximum of one month (3 months prior to 6 April 2012). There are exceptions to this normal rule for the disability elements. You can find a full explanation of these special rules in the backdating section of the website.

Problems relating to the disability elements

Due to their complexity, the disability elements can cause both claimants and HMRC staff problems. HMRC believe that errors relating to the disability element are common and they have carried out a series of compliance exercises since 2010 to check claims that include the disability element. In addition, all claims are now checked before going into payment if the box for the severe disability element is ticked. As a result many claimants have had their disability elements removed which has led to either a reduction in tax credits (and large overpayments) or the stopping of their claim altogether.

Several of these cases are based on ‘Case G’, which is one of the qualifying benefits tests explained above. It takes its name from the legislation contained in Regulation 9 WTC (Entitlement and Maximum Rate) Regulations 2002. Condition 3 of the disability element of WTC requires the claimant to be in receipt or to have received in the past, certain disability benefits. One of the qualifying benefits is the disability element of WTC itself, provided there was entitlement to it in the last 56 days. This allows claimants who qualified under one of the other headings to continue receiving the disability element indefinitely (providing condition 1 and 2 are also met). It is important to be aware that qualification via the disability element of WTC itself does not apply where the original qualification was through DLA, AA or the invalid vehicle scheme.

We are aware that in some cases, HMRC have asked claimants for evidence of current disability benefits or evidence that they have received one of those benefits recently (in the last 182 days for most of the benefits listed under Condition 3 above). In those cases, claimants have not been asked any questions that would establish entitlement under Case G of the regulations.

If there is a possibility that the claimant qualified originally via Cases A, B, E or F, a quick call to the DWP can generally confirm the dates and a letter can be sent out confirming the benefit. This should be forwarded to HMRC as part of an appeal against the decision to remove the disability element.

Updated 7 May 2014
Last reviewed 28 June 2016