Tax Credits: Understanding disability
A claimant with disabilities may not necessarily be disabled for tax credit purposes. This guide explains those parts of the tax credit system where having a disability may be relevant.
- Disability element of Working Tax Credit
- Severe disability element of Working Tax Credit
- Children and disability
- Backdating and disability
- Existing tax credit claims
- New claims
- Problems relating to the disability elements
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. In addition, it increases the maximum award of tax credits.
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.
- Case A: The claimant must have received higher rate short term or long term incapacity benefit, severe disablement allowance, employment and support allowance (ESA) or a limited capability for work credit for at least one day in the previous 182 days (the qualifying day). If they qualify because they are receiving (or have received) ESA or a limited capability for work credit (from 1 May 2012), there is a further condition. They must have been entitled to either ESA , that credit, statutory sick pay, or higher rate short-term incapacity benefit, long term incapacity benefit, severe disablement allowance, or income support (payable in accordance with paragraphs 10(1)(b) or 2(b), 11 or 12 of Part III Schedule 2 to the Income Support (General) Regulations 1987) for a period of 28 weeks preceding the qualifying day, which must comprise either one continuous period or two or more periods which are linked together.
- Case B: The claimant must have received, on at least one day in the previous 182 days, the higher pensioner or disability premium in income support, income-based jobseeker's allowance, or housing benefit.
- Case C: The claimant must currently receive disability living allowance (DLA), personal independence payment (PIP), armed forces independence payment (AFIP), attendance allowance (AA) or Scottish disability assistance. They can also qualify if you currently receive a mobility supplement or constant attendance allowance paid in conjunction with a war pension or industrial injuries disablement benefit. For the disability element only (not the severe disability element) any rate of DLA or PIP will qualify them. If their DLA, PIP, AFIP, AA, mobility supplement or constant attendance allowance stops the disability element will cease immediately.
- Case D: The claimant must have an invalid carriage or another vehicle provided under the Invalid Vehicle.
- Case F: They qualify if they have undertaken 'training for work' for at least one day in the previous 56 days, and within 56 days before the first day of training for work they have received either:
- short-term incapacity benefit at the higher rate, or
- long-term incapacity benefit, or
- severe disablement allowance, or
- contributory ESA or a limited capability for work credit (from 1 May 2012). Again, they must have been entitled to contributory ESA, that credit, statutory sick pay or higher rate short-term or long term incapacity benefit or severe disablement allowance for a period of 28 weeks, comprising one continuous period or two or more periods which are linked together. If statutory sick pay was payable, they must have satisfied the required contribution conditions.
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.
- Case G: The claimant qualifies if they have been entitled to the disability element of WTC itself at any time in the previous 56 days because they met the conditions in any of Cases A, B, E or F at some earlier time. But if the reason they were entitled to the disability element was that they were getting DLA, PIP or AA or under the invalid vehicle scheme, they will not qualify under this head. It is important to be aware that this rule also applies when a claim is renewed each tax year as it is counted as a new claim. Before April 2003 entitlement to disabled person’s tax credit was the qualifying condition. See case law CTC/2165/2017 for an example of how this works.
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:
- Case E: This case is often referred to as the ‘fast track’ rules, although this is somewhat of a misnomer. To qualify under this route, the claimant (or their partner) must meet all 3 of the following requirements:
- (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.
(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.
- 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.
- Their gross earnings have dropped by at least 20% following their disability, with a minimum reduction of £15 per week.
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) or the higher rate daily living components of Scottish disability assistance. 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, the higher rate daily living component of Scottish disability assistance, 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.
Prior to 6 April 2017, there was no separate child disability element. The child element was payable at one of three rates that reflected disability and severe disability. However it was common for everyone, including HMRC, to refer to a disabled child element and severely disabled child element.
Due to the introduction of the two child limit from 6 April 2017, the legislation was amended to create a child disability element.
The CTC disability element is payable at two rates:
- disabled child or qualifying young person
- severely disabled child or qualifying young person
These two rates may be referred to as different elements but they are in fact one element, payable at two different rates.
The disabled element is payable for as many children on the claim who qualify and is not subject to the two child limit.
The disability element is paid for each disabled child or QYP that a claimant is responsible for, irrespective of the two child limit policy and whether or not a basic child element is paid for the child.
A child or QYP is disabled for tax credit purposes if any rate of DLA, child disability assistance (Scotland) or Personal Independence Payment (PIP) is payable for the child or QYP, or has ceased to be payable soley because they are a hospital in-patient.
A child or QYP will also qualify if they are certified as severely sight impaired or blind by a consultant ophthalmologist, or has ceased to be registered or certified as blind within the 28 weeks immediately preceding the date of claim.
Severely disabled child
The CTC disability element is paid at a higher rate for each severely disabled child or QYP that a claimant is responsible for.
A child or QYP is severely disabled for tax credit purposes if the highest rate care component of DLA, the higher rate of disability assistance (in Scotland), the enhanced rate daily living component of Personal Independence Payment (PIP) or any component of Armed Forces Independence Payment (AFIP) is payable for them, or would be payable but for a suspension or abatement due to hospitalisation.
Note: if a new claim for DLA/PIP or AFIP is made whilst a child is in hospital, it cannot be paid until the child is discharged. However, HMRC should be notified of any successful claim as soon as possible (especially if the highest rate care component or enhanced rate daily living component has been awarded). This is because the CTC severe disability element can be included whilst the child is in hospital, even though DLA has never been in payment. The same does not apply to the CTC disability element.
It is the claimant’s responsibility to notify HMRC if DLA (or any other disability benefit) is awarded for their child/young person. HMRC do receive data from DWP when DLA is awarded for a child, however HMRC have stressed this is a back-up system and in some cases it has failed meaning some people may not have received the extra amounts they were entitled to. You can read more about this following an announcement in the Autumn Statement 2016 on our blog.
HMRC state that it is no longer possible for anyone to make a brand new claim for tax credits. See our who can claim page for further information.
When it was possible to make a new claims for tax credits, backdating was limited to a maximum of 31 days. However there was an exception to this in cases where a qualifying disability benefit was needed in order to establish entitlement to WTC. In those cases, as long as the claimant claimed WTC within 1 month of the award of the qualifying disability benefit, the WTC could be backdated to the first day of the disability benefit award (assuming the other conditions for entitlement to WTC were met during that period).
Existing tax credit claims
Usually, changes of circumstances can generally be backdated up to a maximum of one month (3 months prior to 6 April 2012). However, longer backdating is possible in relation to the disability elements in certain circumstances.
Broadly, where the claimant notifies HMRC that they have been awarded a qualifying disability benefit within a month of the benefit decision, such that they meet the conditions to have any of the disability elements included in their tax credit award, the relevant additional disability elements can be added to their tax credits award. They will be added with effect from the date the qualifying benefit was awarded
The rules about longer backdating for disability elements have always been in existence but in 2020, HMRC concluded that they did not have full legislative cover to apply the backdating rules where the longer backdating required a change to a finalised award, ie the backdating reached back into previous tax years. For this reason, the legislation was changed to clarify the powers with effect from 15 January 2021 and the longer backdating is now applied under Section 21C of the Tax Credits Act.
The rules for longer backdating of disability elements are as follows:
Where the claimant is awarded a qualifying disability element and they meet the conditions to have any of the disability elements added to their tax credit award, provided they notify HMRC within 1 month of the qualifying benefit decision, HMRC will backdate the change to the tax credit award to take effect from the date the qualifying benefit is awarded. If the effective date is backdated to an earlier year and the tax credit award for that year has been finalised, HMRC can review that tax credit entitlement decision under section 21C. This allows HMRC to vary the award (to include disability elements) or not and they must notify the claimant of the outcome of their review. The review outcome under section 21C carries appeal rights.
Where the claimant does not notify HMRC of their qualifying benefit decision within 1 month of the decision, HMRC may only backdate the change to the tax credit award up to 1 month, the standard backdating timeline as stipulated in the legislation.
Where a claimant makes a claim for a qualifying disability benefit and, before receiving a decision on that benefit, they claim universal credit then our understanding is that the longer backdating rules can still apply as long as they tell HMRC within 1 month of the award of the qualifying benefit.
Rasheed is a single father with two children. He worked full time and claimed working tax credit and child tax credit. On 1 May 2022, he claimed Disability Living Allowance for his youngest child. In November 2022, Rasheed lost his job and claimed universal credit from 10 November 2022. His tax credits ended. In December 2022, his DLA for his youngest child was refused and Rasheed appealed. In September 2023 Rasheed was awarded DLA for his child at a Tribunal. As long as Rasheed contacts HMRC within 1 month of the Tribunal decision, his tax credits award will be recalculated to include the child disability element(s) from 1 May 2022 to 9 November 2022 (the day before he claimed universal credit).
Sharing of information between HMRC and DWP
There are occasions where DWP share information with HMRC about qualifying disability benefits for tax credit claimants. HMRC say they have arrangements to receive this kind of information from DWP approximately monthly. Where HMRC receive this relevant information from DWP, they can amend the tax credit award, under s16 of the Tax Credits Act, to include any qualifying disability elements. If this happens and HMRC change a tax credits award due to notification by DWP but not notification by the claimant, they will not backdate the change earlier than 6 April in the current year, ie they will not review an award from any previous year that has been finalised. HMRC will send a fresh award notice to the claimant for the current year to tell them about the change to their award. This does not override the claimant’s responsibility to notify the change of circumstances and longer backdating can still be applied if the claimant notifies HMRC within a month of their benefit decision, even if their current year award has already been changed.
It is, therefore, very important that claimants who have been waiting some time (or at least where the wait crosses over a tax year) for a decision about a qualifying disability benefit and, once it is awarded, qualify for any tax credit disability elements, contact HMRC within 1 month of getting their benefit decision to make sure they don’t lose out.
Further information can be found in the backdating section of the website.
Due to their complexity, the disability elements can cause both claimants and HMRC staff problems. HMRC state 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.
Last reviewed/updated 4 May 2023