Does the remittance basis apply to tax credits?
Tax credits have their own rules about what is and what is not income. Other benefits will also have their own rules, which may not be the same as tax credits and tax.
If you claim tax credits, you need to be aware that a remittance basis does not exist for tax credits, so effectively the arising basis is imposed, regardless of what basis of taxation is adopted.
This means that even if you use the remittance basis for tax purposes – foreign income and gains are only taxed in the UK when they are brought, or 'remitted to', the UK – you must declare your worldwide income for the purposes of tax credits.
When you claim tax credits, foreign income (excluding employment income and trading income) is entered under the ‘other income’ box on the claim form and renewal forms.
This includes profits from property overseas, overseas pension and social security income, and overseas investment income, such as bank interest arising on a non-UK bank account. Foreign chargeable event gains are treated as investment income for tax credits, which, again, should be included in the ‘other income’ box.
Employment income and trading income arising outside the UK are simply treated as employment income and trading income respectively, so they should be entered in these boxes on the forms rather than the ‘other income’ box.
You should normally use the gross amount (before any tax is taken off) and the amount should be stated in pounds sterling, not the original currency. You can deduct the amount of any banking charge or commission paid when converting the currency.
When converting foreign income into pounds sterling, you should use the average exchange rate figure for the year the income relates to. For example, if the income is from 2018/19, use the average exchange rate for the year ended 31 March 2019. You will find the exchange rates on the GOV.UK website.
Not all foreign income is counted for tax credits – there are a few limited exceptions.
Therefore, anyone with foreign income should seek advice to ensure that they are declaring the correct amounts. For those who require more detailed information about foreign income and tax credits, the HMRC manual provides full details of what counts as foreign income.
You can find out more about the remittance basis and arising basis on our page How are foreign income and gains taxed?.
You can find further information on tax credits in the tax credits and benefits section on the LITRG website.