Self-isolation payments are NIC-free but taxable
Sarah Bradford explains when an individual may receive £500 test and trace support payment and why it is free of national insurance but remains subject to income tax.
Government guidelines require someone who has symptoms of coronavirus to stay at home and self-isolate to stop the spread of the virus.
NHS track and trace may also ask people to isolate if they have come into contact with someone who has tested positive for coronavirus. In this case self-isolation is a legal obligation and fines ranging from £1,000 to £10,000 may be charged for non-compliance, depending on the severity of the situation.
Self-isolating has financial consequences for those who are unable to work as a result. A £500 track and trace support payment is available to certain people on low income, who are asked by NHS track and trace to self-isolate, on or after 28 September 2020.
The track and trace support payment scheme runs from 28 September 2020 to 31 January 2021. Payments made under the scheme will be paid by the claimant’s local authority.
A person will be eligible to claim a one-off £500 track and trace support payment if they live in England, have been told to self-isolate on or after 28 September 2020, and meet all of the following eligibility criteria:
- have been told to stay at home and self-isolate by NHS track and trace, either because they tested positive for coronavirus or because they have recently been in close contact with someone who tested positive for coronavirus
- are employed or self-employed
- are unable to work from home and will lose income as a result of self-isolating
- receive at least one of the following benefits
- Universal Credit
- Working Tax Credit
- Income-based Employment and Support Allowance
- Income-based Job-seeker’s Allowance
- Income Support
- Housing Benefit
- Pension Credit
Individuals who do not receive one of the benefits listed above but who meet the other necessary criteria may be eligible for a discretionary payment of £500 if they will suffer financial hardship as a result of having to self-isolate.
Claimants wishing to claim the track and trace support payment should contact their local authority. Details of the application procedure for the relevant English local authority can be found on the local authority’s website. This payment is not available to people who live in Wales or Scotland as those devolved authorities are implementing their own schemes. Northern Ireland has yet to announce what payments will be provided there.
Track and trace support payments are treated as earnings derived from employment and, in the absence of a specific exemption, would be liable to class 1 (earnings-related) national insurance contributions.
However, regulations (Social Security Contributions (Disregarded Payments) (Coronavirus) (England) Regulations 2020 (SI 2020/1065)) provide an exemption from class 1 and class 1A national insurance contributions. Consequently, there is no requirement for local authorities or employers to deduct national insurance from the payments or to report the payments to HMRC.
Payments made on or after 28 September 2020 and prior to the regulations that came into force on 22 October 2020 will also be exempt from class 1 and class 1A NIC; HMRC will use its administrative powers to facilitate this.
The government has indicated that the track and trace support payments will be subject to income tax, although they will be paid gross by the local authorities, without tax deducted at source.
However, it is expected that the payments will not be counted as income for tax credits or universal credit, following the treatment of payments under the earlier self-isolation payment scheme piloted in parts of England. This treatment hasn’t been confirmed by DWP or HMRC.
Employees can receive the track and trace support payment on top of sick pay paid by their employer, although sick pay is taxable.
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Sarah Bradford BA (Hons) FCA CTA (Fellow) is the director of Writetax Ltd (www.writetax.co.uk) and its sister company, Writetax Consultancy Services Ltd. She writes widely on tax and National Insurance contributions and is the author of National Insurance Contributions 2020/21 published by...