Pension Credit, Income Support and the benefit-cap earnings test deduct the tax on statutory pay but don't count the pay #2370

What happens

Three means tests deduct all of a person's income tax and National Insurance but count none of statutory sick, maternity or paternity pay as income. The model taxes all three (employment_benefits in taxable_employment_income; ni_class_1_income), so a claimant's award rises by the withdrawal rate times the tax and NI on the payment:

• pension_credit_income: counts pension_credit_earnings (whose earnings_sources parameter is employment_income and self_employment_income) and the listed income sources, then deducts the claimant's and partner's income_tax and national_insurance.
• income_support_applicable_income: counts employment, self-employment, property and pension income plus social_security_income, which lists none of the three, then deducts income_tax and national_insurance.
• is_benefit_cap_exempt_earnings: tests employment_income + self_employment_income - income_tax - national_insurance against the UC earnings threshold, so the tax on statutory pay lowers the earnings counted while the pay itself is left out.

Housing Benefit and Council Tax Reduction count all three (#2368 adds statutory paternity pay), and #2365 counts them as Universal Credit earned income.

Law to check

• State Pension Credit Regulations 2002 regs 17A and 17B (earnings of employed earners).
• Income Support (General) Regulations 1987 reg 35(1) (earnings of employed earners).
• UC Regs 2013 reg 82(1)(a) (the benefit cap earnings exception reads earned income, which reg 55(4) says includes these payments) and the Housing Benefit benefit cap earnings exception.

Related: #2108 (means tests deduct the year's income tax liability rather than the tax deducted from earnings), #1997.

Data

The enhanced FRS (uk-data 1.58.0) carries statutory sick and maternity pay but not statutory paternity pay, so this affects the survey through SSP and SMP.