Civil legal aid: how we calculate income and what’s included

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.

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.

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.

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.

You can view our published policy on discretionary disregard.

• Housing costs: We will make an allowance for the amount the person concerned is liable to pay for rent, mortgage and council tax of their primary residence. Allowances will also be made for the payments being made to their buildings and contents insurance, factor and service charges and any repairs/maintenance costs paid during the relevant period where we are satisfied that these were wholly necessary.
• Spouse or partners: The relevant statutory allowance will be given if the person concerned spouse/partners resources are to be aggregated for assessment purposes in accordance with Section 42 of the Act. The allowance will also be given when the person concerned and their spouse/partner are living together under the same roof, in a relationship but there is a contrary interest in the outcome of the proceedings. While the spouse/partners resources will not be aggregated in these circumstances due to the contrary interest, we must still apply the statutory allowance.
• Dependent children: The statutory allowance will be given for any children wholly or substantially maintained by the person concerned, when they are living in their household. We have discretion to determine who is considered a dependent person. The allowance will be reduced where a child is in receipt of income. The allowance will also be reduced where a child only lives with the person concerned some of the time.
• The dependent allowance applies to any natural child or a child who has been adopted. The allowance does not apply to children in kinship care or foster care.
• Other dependents: We generally do not consider a dependent allowance for anyone living with the person concerned other than their children. This is on the basis that individuals will normally be in receipt of their own income or entitled to benefits or other government payments in their own right. An allowance can be considered if we are given information and evidence to satisfy us that the relevant person is not receiving income or entitled to claim support and that they do not have any capital available to them.
• Work related allowances for wage or salaried employment (not related to employment expenses for the self-employed): Allowances will be made for the Income Tax and National Insurance estimated to be payable on the wage or salary included for assessment purposes. Allowances will also be made at our discretion for payments made by the person concerned for pension contributions, child care costs and employment related membership fees. An allowance will be given for public transport travel costs to and from the person’s place of employment. If the person concerned is using their own vehicle to travel to work, we will make an allowance based on the HMRC mileage rate applicable at the date of application.
• Maintenance payments: Allowances will be made when the person concerned is paying maintenance for a former spouse/partner, child or a relative, who is not living them. We have discretion to decide what payments relate to maintenance and what deduction is reasonable in the circumstances. We do make an allowance where maintenance payments are due but are not being paid.