Basic income pilot for care leavers: payments and tax

The Basic Income for Care Leavers in Wales pilot provided recipients with £1,600 per month for up to 24 months. Some recipients may have received fewer payments if their participation was suspended or they left the pilot early.

Basic income payments are unearned income, which is subject to the basic rate of tax. The basic rate of tax throughout the pilot was 20%. The Welsh Government deducts all tax due ‘at source’ and pays the tax directly to HMRC. This means that the tax due on basic income payments is paid upfront on behalf of all recipients.

Recipients received £1,280 per month after tax. They could choose to receive this amount in 1 instalment or 2 instalments a month. Recipients could also have rent payments deducted from their basic income and paid directly to landlords. For tax purposes, these rent payments were still considered as income received by the recipient.

The maximum basic income a recipient could receive in a financial year was £19,200 (gross), subject to a £3,840 tax deduction paid by the Welsh Government.

The standard personal tax-free allowance refers to the amount of income an individual can earn before being subject to taxation. Throughout the pilot program, the tax-free allowance was £12,570. At the end of the financial year, some recipients may be eligible for a tax rebate. This would depend on their total taxable income for the year. The total income includes the basic income payments and other sources of income such as earnings from employment.

The R40 process lets individuals declare UK financial year income and tax deductions to reclaim some or all of the deducted tax. The HMRC website provides guidance and an online tool for this.

A separate R40 claim must be made for each financial year. At the end of each financial year, the Welsh Government sent recipients a financial statement letter. The letter detailed gross income received and tax deducted from the basic income payments.

Recipients needing a copy of their financial statement letter can email BIPilotWales@gov.wales to request it. The email must:

• confirm their name and date of birth
• confirm which financial year(s) they are requesting the financial statement for
• confirm their postal address if they wish this to be posted or otherwise confirm that they are happy to receive the letter as an attachment via email

Individuals have up to 4 years following the end of a financial year to submit R40 applications for that particular financial year.

HMRC issues tax rebates as cheques to the address provided on the R40 form. Recipients must be able to receive the cheque at that address and have an active UK bank account to deposit it. 

Tax refunds are treated as income for benefits purposes. Therefore, basic income recipients in receipt of Universal Credit must inform the Department of Work and Pensions (DWP) about any tax refunds received.