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Jan Tish CTA, of the Low Incomes Tax Reform Group, highlights some important tax and state benefit issues for the disabled.

Introduction 

The Low Incomes Tax Reform Group is not a disability organisation and does not seek to provide general advice to disabled people.

Our brief is to focus on tax matters as they affect the unrepresented, including disabled people on low incomes.

The next three paragraphs provided by Disability Alliance demonstrate the need to focus on the particular difficulties faced by disabled people. The tax system should do more to help.

"The UK has a diverse population of 11 million disabled adults and 770,000 disabled children. Disabled people are more likely to live in poverty than non-disabled people and disabled people with children are at particular risk of poverty. Only 50% of disabled people of working age are in employment compared with 80% of non-disabled people.

Disabled people of working age have incomes that are, on average, less than 50% of that earned by non-disabled people. Many disabled people may never be able to enter the labour market and will depend on benefits their whole lives. Yet, levels of benefit are inadequate. Incapacity benefit, which replaces earnings for people unable to work, is worth £4,082 a year. Take-up of disability benefits is also low, with only an estimated 40% to 60% of those eligible for disability living allowance actually claiming it.

Day-to-day living is more expensive for disabled people. Disabled people experience additional costs in most areas of everyday life, from specialist equipment to higher ongoing expenses for food, heating, transport and recreation. The weekly income of disabled people solely dependent on benefits is approximately £200 below the amount required for them to ensure an acceptable and equitable quality of life."

If you are someone overcoming a disability or the parent or carer of someone who is, we hope that this brief guide to some of the tax matters that might affect you will prove helpful.

Employment

• Disappointingly, there is no blanket exemption or relief for the extra costs which are incurred by a disabled employee in going to work, over and above those incurred by a non-disabled employee.
• Where however you have an enlightened employer certain costs that are met for you to assist you at work will not be classed as taxable benefits and are therefore tax free. You cannot however claim a tax deduction for costs you meet personally.
• The costs that are covered are:

The provision of a hearing aid or other equipment, services or facilities, even if, say, the equipment is used privately. This would cover the cost of a reader for someone with a visual impairment; a support worker for practical help in getting to and from work; new equipment or alterations to existing equipment; alterations to the premises to accommodate you.

The benefit must be provided under the Government's Access to Work scheme or other statutory provisions and arrangements and your employer may be able to recover some of these costs through the Access to Work scheme.

A contribution your employer makes towards the cost you incur in travelling from home to work.

Adaptations to company cars specifically related to your disability are not taxed as an accessory.

The provision of a specially adapted company car and payment of fuel is not subject to tax. However, this only applies where there is no private use of the car which may not make this exemption particularly attractive.

• Further information on Access to Work can be found by using the link. ( http://www.direct.gov.uk/DisabledPeople/Employment/fs/en )
• General information on employment issues for those on a low income can be found here on our website. ( http://www.litrg.org.uk/help//lowincome/employed.cfm )
• Although aimed at employers you may also find helpful this article written by LITRG which appeared in Payroll Manager Review for February 2006. ( here )

Self-employment

• A self employed person is someone who runs his or her own business or earns money on a freelance basis. You may be running the business in your own name as a sole trader or in partnership with others.
• It is important to be sure that the tax office accepts that you are self employed and not actually employed and further advice on this and other self employed issues can be found here on our website. ( http://www.litrg.org.uk/help/lowincome/selfemployed.cfm )
• As a disabled person you are able to receive assistance from the Access to Work scheme which can provide funding for example for special equipment, and help with human support in the workplace. Further details can be found here on the Directgov website. ( here )
• However, as with employment income, there is no blanket tax exemption or deduction for the extra costs you incur on account of your disability.

Tax Credits

• If you are a disabled person and 16 or over, but work for 16 hours or more per week, you may be entitled to claim Working Tax Credit including a disability premium (known as element in tax credits parlance).
• Working Tax Credit is paid to people on low incomes to top up their earnings from employment or self-employment.
• The disability element is paid to people who are in receipt of certain disability benefits, and who can show that their disability places them at a disadvantage in the workplace (according to a set of medical criteria prescribed in the legislation (see links below).
• If you are in receipt of the highest care component of disability living allowance (NB not mobility), or the higher rate of attendance allowance, you may be able to claim a severe disability element in addition to the disability element.
• The amount you can receive is based on your household income and your circumstances (i.e. whether you are part of a couple or a lone parent, the number and ages of your children, the hours you work, childcare costs, and so forth).
• There are many points you need to be aware of before making a claim and more details including a full explanation of how the disability ( here ) and severe disability elements ( here ) are calculated can be found by using the links.
• Before deciding to make a claim you can check that you are eligible by using the calculator to be found here on HM Revenue & Customs website ( here ) along with information on how to make the claim if you decide to proceed.
• You also should take advice on whether any of the other benefits you receive may be affected by your tax credit award e.g. Council Tax and Housing Benefit.

Council Tax

• Council Tax and Council Tax Benefit is administered by your local authority following government guidelines.
• In assessing your Council Tax bill and also in providing assistance in meeting the bill, certain disability reliefs are available.
• All homes are valued by the Valuation Office ( http://www.voa.gov.uk/council_tax/index.htm ) and Council Tax is calculated by reference either to the valuation band in which your home has been placed (England Wales and Scotland) or by reference to the individual valuation of your home (Northern Ireland).
• In making the valuation consideration should be given to any permanent fixtures designed for a disabled person. Any enhancement is disregarded for valuation purposes but any fixtures that lower the value should be taken into account.
• Separately from this is the Council Tax Disability Reduction Scheme. To apply for this reduction your home must be the sole or main residence of a person with a disability and have a room or other feature which is necessary for the needs and well being of the disabled person, such as a room set aside for dialysis or other treatment or activity.
• If a claim is accepted your home will be moved down a band if in England Wales or Scotland or a 25% reduction made to the valuation for Northern Ireland.
• One further discount that can be claimed is the single person discount. This can apply even if there is more than one person in the household if the other adults can be disregarded.
• In particular, an adult who is severely mentally impaired can be disregarded in counting the numbers of people in the household for the purpose of this discount.
• Further information regarding each of these reliefs and how to make a claim can be found here ( here ) or you can contact your local authority direct.
• Even when all the appropriate discounts and reductions have been made, if you still find that paying your Council Tax bill will cause you financial hardship then you may be eligible to claim Council Tax Benefit.
• This is a national means tested benefit run by local authorities. If you are already entitled to income support or to the guaranteed element of Pension Credit ( here ) you automatically qualify for maximum Council Tax Benefit. If not then the benefit takes account of your income and savings and your weekly needs but with additional disability and severe disability premiums included in the calculation.
• More information regarding Council Tax Benefit can be found here ( http://www.disabilityalliance.org/council.htm ) on the Disability Alliance website or by contacting your local authority, some of whom offer online calculators which enable you to check entitlement before any claim is made.
• If you are finding it difficult to pay your Council Tax then it is advisable to contact your local authority as soon as possible as the consequences of missing payments can be severe, as we highlight in our article Council Tax - beware the bailiffs. ( here )

Direct Payments

• Direct payments offer disabled people and parents of disabled children the opportunity to take greater responsibility over their lives and the services they wish to access. Local councils make the payments as an optional alternative to the services that they would normally provide directly.
• Direct payments are not taxable and do not affect entitlement to benefits. Many recipients use their direct payment to engage personal assistance on terms that can be more directly suited to their needs.
• However this often means that the recipient becomes an employer of their personal carers or support assistants, and this role of employer brings with it a number of responsibilities that can be daunting to many people.
• Apart from employment issues such as the national minimum wage, statutory sick pay and the rights of part time employees, there are also tax and national insurance obligations and forms to be completed.
• LITRG is currently engaged in a detailed review of the issues involved and will publish a report and recommendations.
• Help is available from a number of sources including most council websites and the National Centre for Independent Living ( http://www.ncil.org.uk/ ) and in some areas there may be local arrangements to help you with managing the administration and paperwork for you.
• Limited tax information can be found here ( here ) on Directgov.

FAQs

What sources of income and state benefits can a disabled person receive free of tax?

• Some disability pensions are not taxable. These are war and industrial disability pensions paid to members of the armed forces and civilians and any extra pension entitlement of employees disabled whilst at work paid out from an unapproved scheme.
• Periodic payments from claims for damages or compensation for personal injury are not regarded as taxable income.
• Tax-free state benefits are attendance allowance, disability living allowance, incapacity benefit paid at the short term rate for the first 28 weeks and incapacity benefit that replaces the former invalidity benefit and which you have received continuously since 12 April 1995.

What special tax allowances can I claim as a disabled person?

• Anyone who is registered as blind with their local authority will automatically qualify for blind person's allowance. You will need to make a claim for the allowance, £1,730 for 2007/08 (£1,800 for 2008/09), either by completing the relevant box on your tax return or repayment claim, if you complete one, or by contacting your tax office.
• You can also transfer any surplus blind person's allowance to your husband or wife or civil partner to reduce his or her tax. However, if you are entitled to a married couple's allowance (still available to married couples and civil partners one of whom was born before 6 April 1935), you must also transfer any surplus married couple's allowance at the same time.

I am a disabled pensioner can I get additional help through pension credit?

• The guarantee element of Pension Credit tops up your income to at least £119.05 per week for single pensioners and £181.70 per week for couples. If you are in receipt of certain disability benefits and meet certain other conditions, you may be entitled to the severe disability amount. This is £48.45 per week for single pensioners or a couple with one person qualifying, or £96.90 per week if a couple and both qualifying.
• Pension Credit, both the guarantee element and additional savings credit, is means tested; however, certain income is disregarded. Attendance Allowance and Disability Living Allowance are ignored in computing the guarantee element, and Incapacity Benefit and the Severe Disablement Allowance (still paid instead of Incapacity Benefit to some people without national insurance contribution records) are not included when working out the savings credit.
• If you would like some more information on Pension Credit can we suggest you have a look here ( here ) on our website and also at two other very useful links:

Help the aged - Can you claim Pension Credit? ( here )

Age Concern - Factsheet 48 - Pension Credit ( here )

Do I have to pay VAT on my mobility aids and supplies?

• As we have highlighted in our recent report VAT and disabled people – the case for removing barriers ( here ) – VAT on mobility aids and supplies follows a well intentioned but often arbitrary and irrational set of rules.
• VAT can be charged on supplies of goods and services at the standard rate of 17.5%, or at a reduced rate, or at a zero rate. The zero rate applies to supplies of certain goods which are solely designed for the use of disabled people (the design requirement).
• The courts tend to interpret the design requirement literally. This can mean that whilst you can buy a wheelchair and pay no VAT, a reclining chair or orthopaedic mattress attracts the standard rate of VAT unless it has been designed solely for use by a disabled person. Similarly, certain battery operated aids may be free of VAT but the batteries you buy for it will be charged to VAT.
• Any aid that has been designed solely for use by a disabled person is free of VAT and your local mobility shop or supplier should be able to help you identify these items. You will be asked to sign an eligibility declaration when you buy the item.
• HM Revenue & Customs have produced a leaflet Getting things VAT free if you have a disability ( here ) but this is only generally available from their website.

Case studies

• In any system dealing with millions of people, some don't get (or don't get immediately) what they need. Sometimes expert support will sort things out – and maybe make a huge financial difference.
• These case studies come from tax clinics held for pensioners by TaxHelp for Older People (TOP): ( http://www.taxvol.org.uk/ )

Mr F retired due to ill health and was receiving Incapacity Benefit and two pensions. A catalogue of errors then ensued when one pension disappeared off the Inland Revenue's computer, the Incapacity Benefit varied in their estimation by £2000 and the Revenue then attempted to tax Mr F's Disability Living Allowance. Everything was eventually put right after a 10-month battle by TOP.

Mr & Mrs J came to TOP as Mr J was a disabled person receiving only the basic State Retirement Pension, whilst Mrs J had a small NHS pension and earnings from her employment (she continued working, aged 80, to keep them going). TOP managed to ensure that previous overpayments of tax were recovered and that the married couple's allowance was transferred to Mrs J to reduce her tax bill.

Mrs K was registered as partially sighted. When helping with her repayment claim, TOP encouraged her to have eyesight re-tested. She subsequently became registered blind and TOP assisted her to claim blind person's allowance.

Useful links

Perhaps the first port of call is the Disability Alliance – What you can Claim for 2007/08 ( http://www.disabilityalliance.org/ben3.htm )

Organisations acting for people with particular kinds of disability, for example:

 Mencap ( http://www.mencap.org.uk/ )

 MIND ( http://www.mind.org.uk/ )

 RADAR ( http://www.radar.org.uk/ )

 RNIB ( http://www.rnib.org.uk/ )

 RNID ( http://www.rnid.org.uk/ )

 Scope ( http://www.scope.org.uk/ )

HM Revenue & Customs ( http://www.hmrc.gov.uk/ ) – there is no separate disability section although tax credits can be accessed from the home page

Department for Work & Pensions – this has a dedicated disability section. ( http://www.dwp.gov.uk/lifeevent/discare/ )

DirectGov – this has a dedicated section for disabled people. ( http://www.direct.gov.uk/en/DisabledPeople/index.htm )

The Equality and Human Rights Commission – since 1 October 2007 this new commission has combined the work of three previous commissions: the Disability Rights Commission, the Equal Opportunities Commission and the Commission for Racial Equality. ( http://www.equalityhumanrights.com/ )

Our own reports and submissions

• VAT and disabled people – the case for removing barriers ( here )
• Disability in Tax and Related Benefits: The Case for a Modern and Coherent Approach  ( here)
• How do we know we are making progress? – LITRG response to Office for Disability Issues consultative document ( here )
• Submission to the Works and Pensions Select Committee on the proposals on Incapacity benefits in the Welfare Reform Green Paper ( here )
• Evidence to the Work and Pensions Committee of MPs on the proposed reform of incapacity benefit ( here )
• DWP paper Delivering Equality for Disabled People – LITRG response ( here )
• Income Tax (Trading & Other Income) Bill – meaning of disability ( here )