Tax treatment of certain Scottish social security benefits
Published 11 March 2020
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Who is likely to be affected
Individuals who are entitled to the specified social security benefits covered by this measure.
General description of the measure
This measure clarifies the tax treatment of three new social security benefits introduced by the Scottish government. It confirms the exemption from income tax for Job Start and the Disability Assistance for Children and Young People and introduces an exemption from income tax for the Scottish Child Benefit.
It also introduces a new power to enable new social security payments, introduced by the UK government or devolved administrations in the future, to be exempted from income tax by statutory instrument.
Policy objective
The objective of this measure is to confirm the tax treatment of three social security benefits introduced by the Scottish government and to enable the government to clarify the tax treatment of new social security payments, introduced by the UK government or devolved administrations, by statutory instrument.
Background to the measure
Social security benefits are administered by a number of different UK government departments and the devolved administrations.
The tax treatment of social security benefits is legislated for in Income Tax legislation. The tax treatment of new benefits should be confirmed when each one is introduced.
The Scottish government’s fiscal framework underpins the powers over tax and welfare that are devolved to Scotland through the Scotland Act 1998. The fiscal framework states that new benefits introduced by the Scottish government will not be deemed to be income for tax purposes, unless it ‘tops up’ a taxable benefit.
The Scottish government is introducing three social security payments:
- Job Start
- Disability Assistance for Children and Young People
- Scottish Child Payment
Operative date
This measure will have effect on 6 April for the tax year 2020 to 2021 and subsequent tax years.
Current law
The Income Tax treatment of social security benefits is legislated for in Part 10 of the Income Tax (Earnings and Pensions) Act 2003 (ITEPA 2003).
Section 660 of ITEPA 2003 details the taxable UK benefits in Table A.
Section 677 of ITEPA 2003 details the UK social security benefits wholly exempt from Income Tax in Table B.
Proposed revisions
Legislation will be introduced in Finance Bill 2020 to amend ITEPA 2003 to clarify the Income Tax treatment of three social security benefits and enable new social security payments introduced by the UK government or devolved administrations to be exempted in future by the Treasury by statutory instrument.
The following new Scottish benefits will be exempted from tax in Table B in section 677 of ITEPA 2003:
- Job Start, payable under the Employment and Training Act 1973,
- Disability Assistance For Children and Young People, payable under the Social Security (Scotland) Act 2018, and
- Scottish Child Payment, payable under the Social Security (Scotland) Act 2018.
This measure will also introduce a new power to add new benefits to Table B in ITEPA 2003, confirming tax exempt status. This power can be used on new benefits introduced by the UK government, or any devolved administration. Regulations will be made by government (Treasury) in a statutory instrument, subject to negative resolution procedure.
Summary of impacts
Exchequer impact
| 2019 to 2020 | 2020 to 2021 | 2021 to 2022 | 2022 to 2023 | 2023 to 2024 | 2024 to 2025 |
|---|---|---|---|---|---|
| - | - | negligible | negligible | negligible | negligible |
This measure is expected to have a negligible impact on the Exchequer.
Economic impact
This measure is not expected to have any significant economic impacts.
Impact on individuals, households and families
This measure is expected to have a positive impact on individuals in receipt of Job Start, Disability Assistance for Children and Young People and the Scottish Child Payment.
This measure confirms that these benefits are tax exempt. Customer experience for individuals in receipt of these benefits is expected to stay broadly the same as these individuals will not experience any change to their customer experience.
The measure is not expected to impact on family formation, stability or breakdown.
Equalities impacts
Due consideration has been given to the equalities impacts of this measure. This measure will affect those in receipt of the social security benefits detailed, which include a broad range of demographics. It does not discriminate on those with protected characteristics. The policy applies equally to those affected by its provisions and in receipt of the relevant benefits.
Impact on business including civil society organisations
There is no impact on businesses or civil society organisations as this measure only affects individuals.
Operational impact (£m) (HMRC or other)
The operational impacts of this policy are negligible. There are no information technology impacts associated with delivering this measure and it is expected purely guidance changes will be required.
Other impacts
Other impacts have been considered and none have been identified.
Monitoring and evaluation
This measure will be kept under review through communications with affected taxpayer groups.
Further advice
If you have any questions about this change, email: incometax.structure@hmrc.gov.uk.