Taxable Benefits - ITEPA or ITTOIA

[Taxo]

Benefits such as Statutory Sick Pay (SSP) and and Job Seekers Allowance (JSA) are taxable so there are no restrictions on how the income could or should be spent. This contrasts with benefits such as Income Support or the Disability Living Allowance where restrictions are applied before the benefit is received.

So which tax regime does SSP and/or JSA fall under?

[section 44]

taxable so there are no restrictions on how the income could or should be spent

really?

[Taxo]

really?

Mmm. These benefits are paid on the basis of subsistence so in theory they should only be used for that purpose but there is nothing to prevent the income being used for another purpose unless you know different.

Another issue is one of National Insurance. Under ITEPA tax and NI go hand in hand however in this case the income is received without NI being payable on it. The recipient must have paid NI for a qualifying period before receiving the benefit. Could it be that this income belongs to neither ITEPA or ITTOIA but on the other hand tax is assessible under both? Can we have chips withouth vinegar so to speak.

[bd6759]

ITEPA charges income tax, is has nothing to do with NI.

Read Part 10 of ITEPA. If social security income is caught by the provision, it is taxable.

[Taxo]

ITEPA charges income tax, is has nothing to do with NI.

Read Part 10 of ITEPA. If social security income is caught by the provision, it is taxable.

Thanks. So legally the income from benefits is equal to an income from employment at least from a taxation point of view?

Which beggars the question are benefits a form of state employment free of NI equivalent to a master/slave employment? Or to put it another way taxation law makes no distinction between earned and unearned income for taxation purposes.

[bd6759]

Thanks. So legally the income from benefits is equal to an income from employment at least from a taxation point of view?

Nonsense. ITEPA also imposes a charge to tax on pensions (amongst other things). You could just as easily say that legally income from benefits is a pension. But you would still be wrong. The fact is state benefits are neither an employment nor a pension.

Which beggars the question are benefits a form of state employment free of NI equivalent to a master/slave employment?

It beggars no such question at all. Try philosophyweb.co.uk to pontificate about that.

Or to put it another way taxation law makes no distinction between earned and unearned income for taxation purposes.

Depends which taxation law you are taking about, but generally, all income is earned one way or another.

[Taxo]

Depends which taxation law you are taking about, but generally, all income is earned one way or another.

I agree with you. What I'm searching for is a way to separate SSP and JSA income from other taxable income for a legislative purpose. Philosphy is another way of saying politically but the separation in any regard would have to be acceptable to the courts. I can't discuss this in more depth here as its accountancy related.

[bd6759]

Taxable benefits are generally (but not exclusively) those that you earn an entitlement to through contributions.

Every year, the Finance Act imposes income tax. The Taxes Acts (such as ITEPA & ITTOIA) define what is chargeable to income tax. Certain social security benefits are defined as taxable, and that is the legislative difference. Were it not for Part 10 of ITEPA, the social security benefits would not be chargeable.

[Taxo]

Were it not for Part 10 of ITEPA, the social security benefits would not be chargeable.

Indeed! The civil legislation I mentioned is not making a distinction about the nature of the earnings and I feel it should.

Part 10 is helpful:

Income Tax (Earnings and Pensions) Act 2003
http://www.legislation.gov.uk/ukpga/2003/1/section/403

403 Charge on payment or other benefit

(1) The amount of a payment or benefit to which this Chapter applies counts as employment income of the employee or former employee for the relevant tax year if and to the extent that it exceeds the £30,000 threshold.

So whilst its taxable the likelyhood is that it never would be for a basic rate tax payer. The £30,000 limit satisfies the requirement separating it out from employment income. Unfortunately the legislation says ITTOIA income is relevant. It cannot be attached to employment but earning could also be set to £30,000 before it qualifies as relevant. By doing this, benefit income could be isolated under both ITEPA and ITTOIA for basic rate tax payers.

[section 44]

403 Charge on payment or other benefit

benefit income

... might not mean the same kind of "benefit"