EIM76004 - Social security benefits: taxation of social security benefits

Parts 9 and 10 ITEPA 2003

The taxation of social security benefits depends on the nature of the income.

UK social security pensions

The charge to tax on pension income arises by virtue of Part 9 Chapter 2 ITEPA 2003. The general rule is that the charge to tax on pension income is a charge to tax on that income excluding any exempt income. UK social security pensions are one of the numerous types of income falling within the meaning of pension income.

For a detailed explanation of the taxation of UK social security pensions see EIM75700.

Other social security Income

The charge to tax on other social security income arises by virtue of Part 10 ITEPA 2003. The general rule is that the charge to tax on social security income is a charge to tax on that income excluding any exempt income.

Arising basis

The normal rule is that social security benefits are chargeable for the year in which they arise. This means that tax is chargeable on the amount of social security benefit payable for the year where this is different from the amount received in the year.

In most cases the amount payable and the amount received will be the same but individuals receiving the State pension, for example, may be paid four weekly or even thirteen weekly in arrears (see EIM76005).

The amounts may differ in the following circumstances (see EIM76005):

• benefit paid in arrears
• overpaid benefits
• non-weekly payment of benefit.

Compensation payments

In certain cases where, because of error, there is a delay in the payment of Social Security benefits or the refund of certain National Insurance contributions, DWP may make ex gratia payments of compensation in respect of the delay (i.e., in addition to the arrears of benefit or the refunds of contributions). These compensation payments should not be regarded as income of the recipient for any tax purposes.