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How do I pay tax on new-style ESA? Do I need to pay NI? Is my work pension classed as earnings?

Meshie

Hello, I've been a lurker here for a while, and I've found out so much from this forum - so thankyou. This is my first post, I really hope someone can help me. To cut a long story short, I've finally faced up to the fact that I'm no longer as physically able as I was, and I've started to get the help I need. I've sorted out my blue badge and I've been awarded PIP. The next step is to apply for new-style ESA contributions-based support group, as I have limited capability for work. I'm not going to be wanting universal credit.

I work for our family business, and we've just amended my pay/hours to reflect what I've been physically managing - 2 hours a day, so 10 hours a week. I've already spoken to my doctor who has provided me with a 3-month doctor's note confirming that due to my health issues (which will not improve) I can only work 2 hours a day, and he's backdated it to 1st October. I know that I'm allowed to earn under £143 after tax and NI, but I have some questions:
1) As it's a taxable benefit, how do I pay the tax on it? Do I need to fill out a self-assessment every April? If so, does it matter that I earned more than £143 a week before 1st October? I'd hate to get to April and find out that it's not under £143 a week but under £7436k a year, and I have to give the benefit back for this tax year.
2) Do I need to pay NI on ESA too?
3) If I still want to pay into my work pension (NEST), which is taken straight out of my wages, is this classed as part of the £143 I can earn?

I'm getting so confused, especially as I struggle with fibro fog, so I apologise if this doesn't make any sense - I've never asked for help before so I want to make sure I get it right. Thank you.

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Comments

poppy123456

HI,

You will only qualify for New style ESA if you've paid the correct amount of NI contributions from working in tax years April 2018 to March 2020. Permitted work applies to those already claiming ESA i'm not sure if it applies to those who don't already claim it.

If this is the fist time you've applied for a benefit like this then you need to be assessed as having limited capability for work, which will need an assessment first like the one you had for your PIP claim. A fit note from your GP and a PIP award doesn't automatically entitle you to limited capability for work and be placed into the Support Group.

If you qualify then the ESA pays Class 1 NI credits so you won't need to pay those. You will only need to pay tax if your income from working and the ESA exceeds the tax free allowance.

Universal Credit is the benefit to claim if you're working and can be claimed by those that have a health condition. Whether you qualify will depend on your circumstances because it's a means tested benefit. If you live with a partner you claim as a couple. If you have savings/capital of more than £16,000 you're excluded from claiming.

If you're not receiving an income from a works pension then it's not classed as income if it's in a pension pot.

Meshie

Hi Poppy,

Thanks for your lovely reply - I've seen that you've helped many people on here.

I've paid enough NI contributions, and speaking to others it looks like my work will be permitted. I know that my doctor's note won't give me automatic entitlement, but have been advised to get one. I'm not wanting to claim universal credit.

Thanks for answering my second question and letting me know that I won't need to pay NI, I thought that might be the case but didn't want to just assume!

Would you happen to know the answers for my first or third question, ie how I pay the tax if I receive ESA? Is it self-assessment? Will it matter that I previously earned more than £143 a week for the first six months of the tax year?

Also, regarding the pension, my question above is about paying into one, not receiving a payment from one... for example, if I get paid £142 after tax and NI, do I make a payment towards my pension out of the £142 or does it come out before? Apologies if I've caused confusion.

I hope you can help! Thanks for your time.

calcotti

Meshie said:

.. how I pay the tax if I receive ESA? Is it self-assessment?

If you normally complete a self assessment tax return you will include the ESA on the return. HMRC will then calculate your liability in the normal way. If you do not normally complete a return HMRC should still be informed by DWP of your ESA and some time after the end of the tax year HMRC will contact you if your overall finances mean that tax is owed.

Meshie said: Will it matter that I previously earned more than £143 a week for the first six months of the tax year?

That has no relevance to tax.
For ESA the under £143 is applied on a weekly basis (although it may be averaged out across several weeks if earnings fluctuate, which is not the same as a change in hours).

Meshie said:

Also, regarding the pension, my question above is about paying into one, not receiving a payment from one... for example, if I get paid £142 after tax and NI, do I make a payment towards my pension out of the £142 or does it come out before?

If you are paying the pension contributions yourself then you will be making them after tax and NI. If your employer is making them on your behalf it can be done either before or after tax (can't remember what happens with NI if the pension s are paid before tax).

You mention it is a family business. Are you a part owner of the business? If so your situation is more complicated because you have a stake in the business profits.

Meshie

Hi Calcotti,

Thank you so much, that's really helpful. No, I'm not a part owner of the business - I've worked for our family's company for 10 years as a straightforward full-time employee, but don't have any stake in the profits. Thanks again, I've scoured the internet for these answers with no luck so it's much appreciated!