Explanatory note

These Regulations provide for an exemption from income tax with retrospective effect for:

• payments made by the Department for Work and Pensions to universal credit claimants previously entitled to certain legacy benefit disability premiums or elements, and

• payments made by the Department for Communities in Northern Ireland under the corresponding scheme for Northern Ireland,

(together, the “Scheme”).

Schedule 15 to the Finance Act 2020 (c. 14) provides for exemptions and relief from tax in respect of qualifying payments. Under paragraph 2(5) of that Schedule the Treasury may by regulations specify compensation payments made by a public authority or by or on behalf of the United Kingdom government to be qualifying payments. Paragraph 3 of that Schedule provides for an exemption from income tax in respect of a receipt of a qualifying payment. Paragraph 3(5) of that Schedule authorises instruments made under paragraph 2(5) of the same Schedule to have retrospective effect.

Regulation 2 specifies that payments under the Scheme are qualifying payments for the purposes of paragraph 3 of Schedule 15 to the Finance Act 2020. This means there is no liability to income tax arising from payments under the Scheme received on or after 18th December 2024.

In the case of the Queen (on the application of) TP and AR (TP and AR No. 3) ([2022] EWHC 123 Admin), the court concluded that there was a difference in treatment between severe disability premium recipients who naturally migrated from legacy benefits to universal credit, by virtue of making a claim to universal credit as a result of a change in their circumstances, and those who remain on legacy benefits.

Following this case, the Universal Credit (Transitional Provisions) (Amendment) Regulations 2023 (S.I. 2023/1238) and the Universal Credit (Transitional Provisions) (Amendment) Regulations (Northern Ireland) 2024 (S.R. 2024 No. 5) (together, the “UCTPA Regulations”) were introduced. The UCTPA Regulations provide for an additional amount of universal credit to be payable to certain claimants who were previously entitled to certain types of disability premiums or elements in connection with their legacy benefits. Eligible claimants are entitled to the additional amount as part of their universal credit award from 14th February 2024, without those amounts being subject to income tax.

The Scheme compensates eligible claimants in respect of periods falling before 14th February 2024.

A Tax Information and Impact Note has not been prepared for this instrument because it contains no substantive changes to tax policy.