EIM76186 - Social security benefits: Employment & Support Allowance: Taxation

Part 10 Chapters 3 and 5 ITEPA 2003

To qualify for Employment and Support Allowance (ESA) a person must satisfy the generic conditions for entitlement. If the generic conditions are satisfied then the Department for Work and Pensions (DWP) will consider whether the person qualifies for contribution based ESA.

Contribution based ESA

To qualify for contribution based ESA (ESA(C)) the recipient must have paid sufficient National Insurance contributions in specified tax years, known as Relevant Income Tax Years.

ESA(C) is known as a contributory benefit because unless sufficient contributions have been paid there will be no entitlement.

ESA(C) is chargeable to tax as social security income. It is paid by the DWP subject to a modified system of Pay As You Earn.

Income related ESA

If a person satisfies the generic conditions for entitlement to ESA but is not entitled to received ESA(C) then they may be entitled to receive income related ESA (ESA(IR)).

ESA(IR) is not taxable.

Credits Only cases

Cases known as Credits Only are for those individuals who:

If a person claims but does not receive ESA they are credited with National Insurance contributions for each complete week that they have limited capability for work. These credits may help the person to qualify for ESA(C) at a future date. These credits also contribute towards entitlement to State Retirement Pension.