Chancellor urged to make self-isolation payment tax-free

The Scottish Government is lobbying the Treasury to make the new self-isolation payment exempt from tax.

In a letter to Chancellor Rishi Sunak, social security secretary Shirley-Anne Somerville said taxing the £500 payment could mean fewer people apply.

The payment, which opened for applications this week, is designed to support those on low incomes who have been asked to self-isolate after testing positive for coronavirus, or after coming into contact with someone who has.

The money will initially be targeted at those who are on universal credit or other legacy benefits.

The payments will be made through the Scottish Welfare Fund, which is administered by local authorities.

The Treasury says all such schemes in the UK are subject to income tax but exempt from national insurance contributions (NICs) – which it states is “fair to everyone”.

Somerville wrote: “I welcome your consideration of an exemption from NICs and I believe a similar approach should be taken in respect of income tax.

“Subjecting these payments to tax risks detracting from the important public health measures they are intended to support.

“In a worst case scenario, the prospect of a future tax liability may prevent a person from applying, leading to them having to make the difficult choice between self-isolating and returning to work so they can support themselves financially.

“Furthermore, the requirement to collect data and report it to HMRC places an additional burden on local authorities, at a time when we are already asking them to administer the grant and other forms of business support payments.

“I would ask that you consider an income tax exemption in respect of payments made under the self-isolation support grant scheme, similar to the exemption you have put in place for NICs and the test and trace support payment scheme in England.”

A Treasury spokeswoman said: “We have treated the Scottish Government scheme exactly the same as we have similar schemes in the rest of the UK by making it subject to income tax but also exempting it from National Insurance Contributions.

“That’s fair to everyone.

“We have also ensured that it has no detrimental impact when calculating universal credit and tax credits so that no-one receiving these payments will see their welfare payments reduced.”