Carer's Allowance and the National Living Wage

In April 2016 the new National Living Wage was introduced. This saw the minimum wage for those aged 25 or over increase from £6.70 to £7.20 per hour. While this was good news for most low paid workers, it may cause problems for some parents on low earnings if they are claiming both Carer's Allowance and Working Tax Credit.

In order to get Carer's Allowance, your earnings after allowable deductions must be no more than £110 per week. Prior to April 2016 someone working 16 hours on the national minimum wage earns £107.20 per week. Since this is below £110, they can get Carer's Allowance.

However, since April 2016 the new National Living Wage for the over 25s is £7.20 per week. This means someone working 16 hours a week will have earnings of £115.20 per week. Because their wages will be £5.20 more than the amount they are allowed to earn, they are at risk of losing all of their Carer's Allowance. 

Similarly, although the Carer's Allowance earnings limit will be increased to £116 a week from April 2017, the National Living Wage will rise to £7.50 per hour in the same month. This means some parents will again go over the Carer's Allowance earnings limit.

A parent in this position may be tempted to cut their hours so their earnings do not increase. However, depending on your circumstances, cutting your hours to below 16 could mean you no longer qualify for Working Tax Credit. This is particularly likely if you are a lone parent. 

Advice if you are affected

If you think this will affect you, get advice urgently. There may be deductions that can be made from your earnings to help you retain your Carer's Allowance payments without having to cut your hours.

It's important to be aware that when calculating how much you earn, the Carer's Allowance Unit deduct certain expenses from your earnings. This includes:

  • Some alternative care costs - for example paying someone to look after your children whilst you are at work. There is no need for the caring to be done by a registered childcare provider. Costs can be deducted so long as you pay someone other than a close relative. However there is a cap on the maximum amount that can be deducted for care costs.
  • Half of any contributions that you make into a work or personal pension.

So for example, if you start paying £11 per week into a pension scheme you can then deduct £5.50 from your earnings. This means that while your actual earnings are £115.20 per week, you would be treated as having earnings of £109.70, allowing you to qualify for Carer's Allowance.

Related information