Income Tax: tax treatment of Statutory Neonatal Care Pay
Published 30 October 2024
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Who is likely to be affected
Employers, and individuals who are entitled to Statutory Neonatal Care Pay.
General description of the measure
This measure confirms the tax treatment of Statutory Neonatal Care Pay as a new taxable social security benefit.
Policy objective
The objective of this measure is to confirm Statutory Neonatal Care Pay, introduced by the Department of Business and Trade, as a taxable social security benefit.
Background to the measure
Social security benefits are administered by a number of different UK government departments and devolved governments.
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 government is confirming the tax treatment of Statutory Neonatal Care Pay, which is part of the Neonatal Care and Pay scheme administered by the Department of Business and Trade. The scheme is due to start in April 2025.
Detailed proposal
Operative date
This measure will have effect on and after the date of Royal Assent to Finance Bill 2024-2025.
Current law
The Income Tax treatment of social security benefits is legislated for in part 10 of the Income Tax (Earnings and Pensions) Act (ITEPA) 2003.
Section 660 of ITEPA 2003 details the taxable UK benefits in Table A.
Proposed revisions
Legislation will be introduced in Finance Bill 2024-2025, to amend ITEPA 2003 to clarify the Income Tax treatment of Statutory Neonatal Care Pay as a taxable social security benefit.
Summary of impacts
Exchequer impact (£ million)
| 2024 to 2025 | 2025 to 2026 | 2026 to 2027 | 2027 to 2028 | 2028 to 2029 | 2029 to 2030 |
|---|---|---|---|---|---|
| — | Nil | Nil | Nil | Nil | Nil |
This measure is not expected to have an impact on the Exchequer.
Economic impact
This measure is not expected to have any significant macroeconomic impacts.
Impact on individuals, households and families
This measure will impact on those individuals who will be in receipt of Statutory Neonatal Care Pay. This measure provides clarity to those individuals and ensures the tax treatment is consistent with other statutory maternity and paternity pay benefits.
Individuals will not need to do anything differently to what they currently do now as these payments will have tax deducted at source. This measure is not expected to impact on family formation stability or breakdown. Customer experience is expected to remain broadly the same as this does not alter how individuals interact with HMRC.
Equalities impacts
This measure is aimed at employees whose children spend a prolonged period in neonatal care and people with certain protected characteristics are more likely to be in this group. The policy does not have any eligibility requirements by any protected characteristic and applies equally to those in receipt of Statutory Neonatal Care Pay.
People who claim Statutory Paternity Pay are more likely to use Statutory Neonatal Care Pay compared to those on Statutory Maternity Pay. This is because Statutory Paternity Pay only lasts up to 2 weeks. The majority of people claiming paternity leave are men, therefore Statutory Neonatal Care Pay is anticipated to be higher among men.
Impact on business including civil society organisations
This measure is expected to have a negligible impact on businesses, including civil society organisations. One-off costs are expected to include familiarisation costs with the new policy, while continuing costs include administrative costs of ensuring that Statutory Neonatal Care Pay is taxed consistently with other Statutory Maternity and Paternity Pay benefits.
Operational impact (£ million) (HMRC or other)
There will be no significant operational impact.
Other impacts
Other impacts have been considered and none have been identified.
Monitoring and evaluation
The measure will be kept under review through communication with affected taxpayer groups.
Further advice
If you have any questions about this change, email: incometax.structure@hmrc.gov.uk.