How we work out earnings
People who work for an employer
If your customer or their partner work for an employer, their gross earnings are all their wages and other payments from that employment, including bonuses, commissions, fees, retainers, sick pay and attendance allowances.
We also count as earnings:
- the value of non-cash vouchers, such as tokens from supermarkets and chain stores, if National Insurance (NI) contributions have been paid on their value.
We do not count certain payments as earnings, for example:
- payments in kind, such as groceries.
We then deduct from your customer’s gross earnings:
- any tax and NI contributions
- half of any contributions towards occupational or personal pension schemes.
What is left counts as earnings in our Pension Credit calculations.
People who are self-employed
If your customer or their partner is self-employed, their earnings are the net profit from that employment. This profit is normally calculated over the previous year but another period may be used if this will be more accurate.
We then deduct the following expenses from gross income to calculate net profit:
- necessary expenses for the business, such as money spent on repairing equipment, interest on a business loan and excess VAT paid while your customer is getting Pension Credit. (This does not cover capital expenditure, depreciation, money for business expansion and business entertainment)
- repayment of capital on loans for replacement and repair of business equipment. (This does not cover any other loans)
- Income Tax and National Insurance (Class 2 and Class 4) contributions, if payable. (These are calculated on a notional basis),
- half of all premiums paid for a personal pension.
Childminders
If your customer works as a childminder in their own home, one-third of their gross income counts as earnings and two-thirds is treated as expenses and is ignored completely.
