Rule 1 of Schedule 2 to the regulations states that the person concerned income is taken to be the income they may reasonably expect to receive (in cash or in kind) during the period of computation.
The following notes give examples of the most common types of income and how we treat them.
Income calculation: assessment of wages or salary from employment
The person concerned should supply
a statement of earnings form completed by their employer, or
usually, as a minimum, their most recent three wage slips.
We will look at what they have earned since the start of the current tax year and use this information to calculate an average that we assume they will earn for the whole of computation period.
We can also take account of, for example, seasonal fluctuations, or periods when the person concerned is not paid, such as school holidays.
Income calculation: calculation of net profit from self-employment or business
We take into account information contained in the latest set of accounts about the net profit your client has earned. We make certain adjustments to the net profit as follows:
we add back notional overheads such as depreciation and provision for bad debts
we make a full allowance for any loans or hire-purchase commitments for business purposes. Most accounts only show interest paid on hire purchase, not the principal repayment. That is why we frequently ask for loan agreements and hire purchase contracts from self-employed applicants. It will speed up processing the application if this information is presented with the accounts.
If your client is newly self-employed and does not have a full year record, we can accept the figure the applicant says they draw each week or month from the business. We will ask for bank statements, to help determine these figures in the absence of accounts.
If your client does not have to have accounts made up, we will accept a copy of the information made available to HM Revenue & Customs and the tax assessment based on it.
Income sources (other than those from wage/salaried employment and self-employment
We have a statutory requirement to disregard the state benefits and other government payments set out in Rules 5 and 7 of Schedule 2.
We use our discretion under Rule 16 of Schedule 2 to disregard other sources of income due to their nature.
List of deductions/allowances made in the calculation of income
Rent or mortgage – We make an allowance for the annual rent paid by the applicant, net of any housing benefit they are entitled to. If the applicant owns the house, we allow the annual mortgage paid, including the premium payable for any related life assurance policies.
Council tax – We allow the annual figure for council tax payable, subject to any reductions or council tax benefit applicable.
Allowances for partners – If the applicant is living with a partner, whether they are legally married or not, and that partner’s resources have been included in the assessment, a statutory allowance is made to cover their dependency on the applicant. This figure is set by the Scottish Parliament and is up-rated annually. This is usually the only allowance we can make, unless the partner has special needs necessitating extra expenditure from their joint income.
Maintenance payments for partner living apart – An allowance can be made for sums being paid to a separated partner, whether the applicant was legally married to that partner or not. We will only make this allowance for amounts actually changing hands, and not if, for example, for sums the applicant has been ordered to pay but is not currently meeting.
We can also make an allowance for any sums paid through the Child Support Agency.
Maintenance payments for former partner – We can make an allowance for any sums being paid to a former partner, whether voluntarily or in terms of a court order. However, we can only make this allowance for amounts actually changing hands, and not for amounts the applicant has been ordered to pay but which they are not currently paying.
An allowance can be made for any sums being paid through the Child Support Agency.
Dependency allowance for maintenance of members of the applicant’s household – A statutory allowance can be made for children resident with the applicant. These can be their own children, their partner’s children or any children resident with them on a full-time basis, who are wholly dependent on the applicant or their partner. The allowance is statutory and is up-rated annually. It is shown on the current Keycard (sent out to solicitors annually, and on our website). If the applicant has part-time care of a child, we apply a pro rata reduction to the statutory allowance.
Actual maintenance – We make an allowance for maintenance payments to a separated spouse, partner or children, whether under a court order or voluntarily, and for payment of a maintenance assessment by the CSA.
This is not a definitive list of all deductions, but illustrative only.