SE65980 - Tax treatment of Local Government Councillors and Civic Dignitaries: DETR guidance - Part Three - members' allowances and the social security system

[Note: for councils in England and Wales this guidance supplements the basic guidance at SE65920. See also:

Part One – Members’ Allowances – England and Wales (seeSE65960)

Part Two – Taxation of Members’ Allowances and Expenses (seeSE65970)]

“PART THREE

Members’ Allowances and the Social Security System

1. National insurance contributions

Introduction

91. As they are for tax purposes, members (councillors and non councillors) are treated as employees and therefore liable to pay National Insurance contributions as employed earners when they receive remuneration allowances at or above the threshold for contributions. When financial loss allowance is the only allowance paid it is not subject to National Insurance contributions.

92. Where allowances are paid at different intervals, the earnings period for the assessment of National Insurance contributions is the shortest interval at which any allowance is paid. For example, if the agreement between the local authority and the member is:

• that an attendance allowance will be paid monthly;
• that a special responsibility allowance will be paid quarterly;
• that basic allowance will be paid annually;

the earnings period is monthly. Class 1 National Insurance contributions would be due if the total earnings in any tax month reached the monthly threshold for contributions.

93. Members above statutory pension age (65 for men and 60 for women) are not liable for contributions on their allowances. The authority (or whoever pays the allowances) is liable to pay the employer’s contribution. For further details, the leaflet NP28 “National Insurance for employees” will be helpful.

If you have more than one job

94. Members with other employment can apply to defer payment of contributions if they expect to pay the annual maximum in that employment. This does not affect the employer’s liability to pay contributions at the appropriate time. For further details see leaflet NP28.

Expenses

95. In some circumstances expenses can be disregarded. Where specific identifiable expenses are actually incurred by a member in carrying out his duties they may be disregarded for National Insurance contribution purposes. Members may have to produce receipts or other evidence of their expenses to confirm the amount which can be disregarded. Members requiring advice on which expenses or payments in kind may be disregarded should contact their local DSS office.

National Insurance credits

96. People under pension age who are sick or unemployed may be credited with National Insurance contributions for each week for which they are incapable of work through illness or disability or are registered as unemployed, available for and actively seeking work.

97. Councillor’s duties are not treated as remunerative work for the purposes of Jobseeker’s Allowance and unemployment credits. Therefore, members registered as unemployed may continue to perform any of these duties and will be awarded a credit provided that any other employment in which they engage amounts to less than 16 hours per week or, where hours of work fluctuate, an average of less than 16 hours each week. Despite eligibility for a credit, councillors will be liable to pay a National Insurance contribution where their earnings exceed the lower earnings limit.

Civic dignitaries

98. If a local authority, or member of a local authority who is also a civic dignitary, requires further information about National Insurance liability in respect of expenses incurred in the course of carrying out duties attached to this office, they should contact their local Contributions Agency office.

2. Members’ allowances and social security benefits

Introduction

99. Members who are incapable of work, unemployed, who have low income or who are retired may find that being paid allowances will affect their entitlement to Social Security benefits. The exact way the entitlement may be changed depends on the particular benefit being received: there is a full range of leaflets produced by the DSS explaining what happens when those in receipt of benefit receive income of any sort.

100. Members’ allowances, for the purposes of Social Security law, include basic allowance, special responsibility allowance, attendance allowance, conference attendance allowance and financial loss allowance. All allowances are treated as earnings from employment for all benefits except financial loss allowance, which may be earnings for some benefits only  notably the income related benefits  if it forms part of a member’s normal income. In general, the amount of earnings taken into account in calculating benefit is the full amount of attendance allowance which the member is entitled to receive for an approved duty, irrespective of whether it is actually claimed or paid. Basic and special responsibility allowances are averaged over the period for which they are authorised on the basis of a seven day week.

The benefits affected

• Jobseeker’s Allowance
• Income Support
• Housing Benefit
• Council Tax Benefit
• Family Credit
• Incapacity Benefit
• Severe Disablement Allowance
• Disability Working Allowance

Where Retirement Pension is paid see paragraph 114.

Effect of not claiming members’ allowances

101. As a matter of DSS policy, all available earnings are taken into account when determining benefit entitlement. This rule applies to everyone  not just members. Therefore, when members in receipt of benefit are eligible for allowances, but do not claim them, they would normally be treated as having received the allowances when benefit is calculated. Some members are put off claiming allowances because they fear loss of benefit through breach of the earnings disregard. The DSS, however, can reduce benefit in any case where deemed earnings have exceeded the disregard even when the allowances have not been claimed.

The DSS needs to know about members’ allowances, local authorities need to know about benefits

102. Members claiming Social Security benefits should tell their local DSS offices of receipt of or entitlement to allowances. Members claiming Housing Benefit or Council Tax Benefit should tell the appropriate local authority. Because allowances do not necessarily have to be claimed or received to be taken into account, members should notify the DSS, or local authority, as soon as allowance entitlements have been confirmed by the member’s own authority, or as soon as an approved duty is performed, and should not wait until allowances are actually received. To avoid any confusion with an allowance of the same name paid by DSS, members should always make clear that they are referring to attendance allowance paid for council duties.

103. Unemployed members claiming Jobseeker’s Allowance who are required to be available for and actively seeking work should also get in touch with their Employment Service Jobcentre. Prompt declarations and details of all allowances paid are required, including any additional basic allowance which may subsequently be paid. Members claiming Family Credit or Disability Working Allowance must declare any allowances they are receiving at the time of the claim. If a member subsequently becomes entitled to or receives an allowance after Family Credit or Disability Working Allowance is amended, they do not have to tell the DSS straight away. This is because the rate of benefit stays the same during the 26 weeks award period even though earnings may increase or new income is received. However any allowances must be declared when a renewal claim for Family Credit or Disability Working Allowance is made.

How benefit entitlement is worked out

104. For each benefit, the conditions of entitlement and the rules relating to treatment of earnings are laid down in Regulations. Individual cases put to the DSS are decided by statutorily appointed adjudication officers in the light of the facts before them and in accordance with the rules laid down in statutes and as interpreted in case law. There is a right of appeal to an independent appeal tribunal against any decision of an adjudication officer  it should be noted that the rules are modified for DLA, AA and DWA  and a further right of appeal on a point of law against a tribunal’s decision to a Social Security Commissioner.

For further details refer to leaflet NI 260 – “Guide to Reviews and Appeals”.

105. With Housing Benefit and Council Tax, cases are determined by officers in the local authority. Claimants have the right to ask for a review of the authority’s determination if they are dissatisfied with it. There is then the further right to ask for the case to be heard by a Housing Benefit or Council Tax Benefit Review Board.

3. Affected benefits

Income Support and Jobseeker’s Allowance

106. From 7 October 1996 Jobseeker’s Allowance (JSA) replaced Unemployment Benefit and Income Support (IS) for the unemployed. Income Support still exists for certain groups, such as lone parents, the sick etc. The IS rules have been adopted for both the contribution and income based elements of JSA.

107. In IS and JSA, allowances paid to councillors are treated as earnings unless they re-imburse expenses wholly, exclusively and necessarily incurred in the performance of the duties of the office held. Earnings are taken into account net of income tax, National Insurance contributions and one half of any contribution to a personal or occupational pension scheme. In arriving at net earnings an amount can also be deducted for any expenses wholly, exclusively and necessarily incurred by councillors in carrying out their duties. An adjudication officer will decide what expenses can be deducted on the facts available. The first £5 a week, or in some cases, £15 a week of net earnings is disregarded before benefit is affected. The enhanced disregard of £15 applies in IS and income based JSA to lone parents, certain disabled people, to carers entitled to the Carer Premium and certain people aged 60 or over. In IS and income based JSA the couples disregard for all couples, even if only one is working, is £10. Documentary proof of the type of allowance, the gross and net amounts paid (or payable if these have not been claimed) and date and period of payment will be required. Also details of any expenses which are included in these payments will be required.

108. Income Support and Jobseeker’s Allowance are not payable if a person works for an average of 16 or more hours a week. The partner of a claimant can work an average of less than 24 hours before Income Support or income based Jobseeker’s Allowance is not payable. However, the time spent carrying out the duties of a councillor will not count towards this total  although councillors’ allowances will continue to be taken into account in the normal way.

109. These examples show how the Income Support disregards work: (April 1996 rates used)

Example (a)

A single person aged over 25 who is unemployed and whose weekly income is £35 councillors’ allowances (net of allowable expenses, i.e. those that are wholly, exclusively and necessarily incurred in the performance of the duties of the councillor)

Income support applicable amount is	£49.15
Less earnings taken into account (£35 - £5 disregard)	£30.00
Income Support payable	£19.15

Example (b)

A lone parent with 2 children aged 6 and 10, has currently weekly income of:

Maintenance	£20.00
Child benefit	£18.10
Councillor’s allowances (net of allowable expenses)	£35.00

Income Support is calculated on the basis of applicable amounts as follows:

Claimant	£49.15
Children (2 x £16.90)	£33.80
Family Premium (lone parent rate)	£15.75
Total	£98.70

Available income is taken into account as follows:

Maintenance	£20.00
Child benefit	£18.10
Councillor’s allowance (£35 - £15 disregard)	£20.00
Total	£58.10

Income Support entitlement is £98.70 (total applicable amount) minus £58.10 (income to be taken into account) = £40.60

For detailed explanation of Income Support refer to leaflet IS20 – “A Guide to Income Support”. For information on Jobseeker’s Allowance refer to the Jobseeker’s Allowance Leaflet.

Housing benefit

110. For Housing Benefit purposes, allowances paid (or payable if these have not been claimed) are treated as earnings unless they reimburse expenses wholly, exclusively and necessarily incurred in the performance of the duties of the office held. For example, travelling expenses incurred performing duties on behalf of the authority would not be taken into account as earnings. Earnings taken into account are net earnings calculated in the same way as for Income Support. Earnings disregards differ in some areas from Income Support e.g. the lone parent earnings disregard is £25, and the standard earnings disregard for a couple is £10, whether or not one or both is working. There is a taper, set at 65%, for the withdrawal of Housing Benefit as earnings increase.

Details of Housing Benefit can be found in the following leaflets:

RR1 – “Housing Benefit  Help With Your Rent”

RR2 – “A Guide to Housing Benefit and Council Tax Benefit”

Council tax benefit

111. Council Tax Benefit is an income related benefit intended to help people who have low incomes meet their liability for the council tax.

For Council Tax Benefit purposes, members’ allowances paid (or payable if these have not been claimed) are treated as earnings unless they reimburse expenses wholly, exclusively and necessarily incurred in the performance of the duties of the office held. Earnings taken into account are net earnings, calculated in the same way and with the same disregards as Housing Benefit. Maximum Council Tax Benefit is 100 percent of the council tax a person has to pay. However, the taper which reduces benefit as income increases is set at 20%.

For an explanation of how the Council Tax Benefit scheme works see booklet RR2, or contact your local authority.

Family credit

112. Family Credit is a cash weekly benefit for working families with children. The parent (or one of them in a two parent family) must be working at least 16 hours a week at the time of the claim. Work as self employed or an employee counts. The amount payable depends on how many children there are in the family, their ages, the family’s normal net earnings and other relevant income, the number of hours worked, and, in certain circumstances, the amount of childcare charges paid. Normal net earnings are calculated net of tax, National Insurance contributions, certain childcare charges and half of any occupational or personal pension contributions. Allowances, less any expenses which are wholly, exclusively and necessarily incurred in the performance of the duties of the office held, are counted as earnings if they are part of the family’s normal income. The question of what amounts to normal income is decided by an adjudication officer on the basis of the facts in each case. Evidence of earnings and any expenses will be required.

For more information about Family Credit see leaflet NI261 “A Guide to Family Credit”.

Disability Working Allowance

113. Disability Working Allowance is the benefit payable to people with an illness or disability which puts them at a disadvantage in getting a job. They must be working for at least 16 hours per week and it is available to single people, lone parents and couples whether or not they have children. The amount payable depends on the income, and the number and ages of any children in the family. Earnings are calculated net of tax, national insurance contributions and half of any occupational or personal pension contributions. There is also help towards the cost of formal childcare for children aged under 11. Allowances, less any expenses which are wholly, exclusively and necessarily incurred in the performance of the duties of the office held, are counted as earnings if they are part of normal income. The question of what counts as normal income is decided by an adjudication officer on the basis of the facts in each case. Evidence of earnings and any expenses will be required.

For a detailed explanation of “Disability Working Allowance”, see leaflet HB4 “A guide to Disability Working Allowance”.”

Retirement pension

114. The earnings rule and retirement condition for State Retirement Pension were abolished on 1 October 1989. From that date a person may continue to work for as many hours in a week as they wish and earn as much as they like without it affecting their state pension.

115. Occupational pensions are not affected by the receipt of members’ allowances. However, members should note that, whilst working, any periods of unpaid leave given by their employers for council service may affect the pension entitlement. Members’ employers will be able to clarify the position for them.

Incapacity Benefit and Severe Disablement Allowance

116. The net amount of allowances (i.e. less expenses) are taken into account as earnings. In calculating the net amount, basic, attendance and special responsibility allowances are taken into account but travel and subsistence and financial loss allowances are excluded. Any reasonable expenses which are included in the gross amounts of basic, attendance and special responsibility allowances can be deducted to arrive at the net amount. Normally those incapable of work do not work but there is a “therapeutic earnings rule” which permits recipients of State incapacity benefits (Incapacity Benefit and Severe Disablement Allowance) to undertake work under medical supervision as part of hospital treatment or on medical advice provided that earnings do not exceed a weekly limit. However, any work done as a councillor is disregarded for the purposes of deciding entitlement to State incapacity benefits. Work done MUST be declared however because the benefits paid to councillors of an authority are reduced by the amount by which allowances exceed the “therapeutic earnings limit”.

Documentary proof of the type of allowance, the gross and net amounts paid (or payable if these have not been claimed) and date and period of the payment will be required. Also details of any expenses which are included in these payments will be required.

117. The “therapeutic earnings limit” from April 1997 is £46.50 a week. This amount is usually reviewed each year. The up to date amount is in leaflet NI 196 ‘Social Security benefit rates’.

For more details see leaflet

NI 214  Incapacity Benefit

NI 252  Severe Disablement Allowance

NI 253  Ill and unable to work?

FB 28  Sick or disabled?

Statutory Sick Pay

118. Most people who work for an employer and pay Class 1 National Insurance contributions (including the reduced rate contribution for married women and widows) can get Statutory Sick Pay from their employer when they are sick and incapable of work under their contract of service for at least four days in a row. Statutory Sick Pay is payable for up to 28 weeks in a period of incapacity for work  periods separated by 8 weeks or less count as one. Statutory Sick Pay is not payable for the first three working days of a period of incapacity for work. Members who pay National Insurance on their allowances may be entitled to receive Statutory Sick Pay from their employer (which in some cases, will be the local authority).

Statutory Sick Pay is a minimum payment for working days off sick. Members may be able to receive allowances during the period of sickness over and above the amount of Statutory Sick Pay.

For more details, see leaflet NI 244 – “Statutory Sick Pay  check your rights”, and leaflet NI 270 – “Employers’ Manual on Statutory Sick Pay”.

Statutory Maternity Pay and Maternity Allowance

119. Women can get Statutory Maternity Pay from their employer if they have worked for that employer for at least 26 weeks into the 15th week before the week the baby is due. In addition their earnings on average must reach the lower earnings limit for the payment of National Insurance contributions. Statutory Maternity Pay can be paid for up to 18 weeks beginning on the Sunday of any week between the 11th week before the baby is due and the week after the birth. Statutory Maternity Pay is paid at a higher rate of 90 per cent of average weekly earnings for the first six weeks then at a lower flat rate for the remaining 12 weeks. Statutory Maternity Pay cannot be paid for any week or part week in which work is done. Pregnant women who cannot get Statutory Maternity Pay may be able to get Maternity Allowance from the DSS.

For details of both the above see leaflet FB 8 – “Babies and benefits”, leaflet NI 17A – “A Guide to Maternity Benefits” and leaflet PL 958 – “Maternity Rights”.

Help and advice

120. Local benefit offices have a large range of explanatory leaflets giving details of the range of benefits available and the prevailing disregards, and levels of payment. Their staff are available to answer questions and explain the system. For advice on Housing Benefit or Council Tax Benefit, the local authority can be contacted. Decisions on eligibility of individuals for benefit are taken by independent adjudication officers or, in Housing Benefit and Council Tax Benefit, by officers of the local authority whose role is explained more fully above. There is a right of appeal against a decision made by these officers: for Social Security benefits this will be heard by an independent appeal tribunal and for Housing Benefit, or Council Tax Benefit, by a Review Board.”