What are these?
Council Tax Benefit is payable by local councils towards the cost of a person’s (or a couple’s) Council Tax charge where the person (or couple) has a low income.
Housing Benefit is also paid by local councils towards the cost of a person’s (or couple’s) rent where the person (or couple) has a low income.
How are they calculated?
If you have capital of more than £16,000, you will not be entitled to either of these benefits.
The maximum amount of Council Tax Benefit is the amount of Council Tax for which the household is liable. This is then reduced by 20p per £1 of income above a threshold that’s dependant on personal circumstances. Clear as mud!
The maximum amount of Housing Benefit is a reasonable rent figure for a suitable home for the household (or the rent actually being paid if less) as assessed by the local council. This amount is then reduced by 65p per £1 of income above this all important, very unclear, threshold!
How is income calculated for these benefits?
Broadly speaking, your income for the purposes of these benefits is your total income less any tax and NI that you pay on your earned income and less half of any pension contributions that you pay.
There is, however, an even more complicated method of working out income from self-employment that doesn’t rely (and actually differs from!) the calculation for income tax purposes. Additionally, benefits in kind for employees and company directors are ignored.
For company owner-managers though, any profits earned by the company, but not withdrawn from it, are not included as income.
There is an amount of income that is then disregarded for the purposes of calculating the benefits that will be the equivalent of between £5 and £25 per week. Additionally, there are other disregards (such as the first £175 of childcare costs in many circumstances) and other complexities to the calculation of income. In particular, you are deemed to earn interest of £1 per £250 of capital that you have between £6,000 and £16,000.
Any income deprivation rules?
Yes.
These are very similar to those for Tax Credits.
Sounds very complicated….is it worth the effort?
Although the calculation to establish entitlement to these Benefits is very complex, the Benefits themselves can act as a lifeline to the owners of ailing businesses and often provide them with the opportunity to live to fight another day!
As usual, please don’t hold back if you would like to discuss this or anything else.
Paul
