PAYE77001 - PAYE operation: incapacity benefit: introduction

Incapacity Benefit (IB) was introduced on 13 April 1995 to replace Invalidity Benefit and Sickness Benefit. It is administered and paid by the Department for Work and Pensions (DWP) (in Northern Ireland, the Social Security Agency).

The Employment Income (EIM) Manual at EIM76001 onwards gives information about IB and tells you what is taxable. The main points to be aware of are

IB is payable at 3 rates

• Short Term Lower
• Short Term Higher
• Long Term

The Short Term Lower rate which is paid for the first 28 weeks of sickness (except where Statutory Sick Pay is payable instead), is not taxable. Claimants who until 13 April 1995 were entitled to Invalidity Benefit are not chargeable to tax on IB due after that date, so long as their claim is unbroken.

IB normally stops at state pension age, but people receiving Invalidity Benefit who reached state pension age before 13 April 1995 can claim non-taxable IB for a further 5 years.

Employees cannot claim IB until Statutory Sick Pay (SSP) finishes, but where an employer continues to pay sick pay after SSP, taxable IB can be received at the same time.