Tax credits What counts as income for tax credits purposes?
You must declare all income you receive from employment or self-employment
As far as tax credits are concerned, your income is everything you earn from your employment (whether you work for someone else or yourself) as well as any income you might have from other sources such as taxable social security benefits, pensions and savings income. However, the first £300 of non-earned income is excluded.
You must declare the income before tax and National Insurance are deducted. However, you can deduct any payments you make to a pension and any payments you make to charity through Gift Aid or a payroll-giving scheme from your income before you declare it.
For example, if you earn £25,000 a year and pay £50 a month to a pension, you can declare your salary as £24,400 (£25,000 - £600).
Small amounts of income
You must declare all income you receive from the following sources, no matter how much this is:
- employment
- self-employment
- taxable social security benefits
- student dependent grant
- some miscellaneous income such as business start-up allowance
However, if you receive income of less than £300 during the year from sources other than these you don't have to declare it.
For example, if you have interest from savings of less than £300 in the tax year, it won't count.
The £300 limit is between you if you are claiming as a couple. You don't have to declare income or interest from tax-free savings such as an Isa (either cash Isa or stocks and shares Isa) or any rent you receive through the rent-a-room scheme.
- For any tax query, call our experts on the Which? Money Helpline
- Try the Which? Tax Calculator
- Take a look at our guide to tax on your savings and investments
