Employment and Support Allowance (ESA) is a government funding pot for people with disabilities, neurodivergence, or health issues that make it difficult for them to work. ESA offers money towards living costs or support to get back into work. To understand more about this key area, we’ve pulled together the details you should know in this post.
Employment and Support Allowance (ESA) is an incapacity welfare benefit for UK-based adults who face difficulties working because of long-term illness, disability, or neurodivergence. Run by the Department of Work and Pensions (DWP), it’s a way for individuals to replace their basic income with state benefits when they can’t work due to illness or disability.
In August 2023 almost 10 million people claimed some combination of benefits from the DWP with around 1.6 million of those claiming Employment and Support Allowance (ESA).
People who can’t work or have limited capability to work can claim a New Style Employment and Support Allowance (ESA). They can do this if they are eligible, or check their eligibility through a Work Capability Assessment (WCA). Different types of ESA will suit different individual circumstances and some people may need to contribute towards an ESA if they’ve already been working. When people are unable to work or have limitations to their working lives because of complex health problems like Bipolar Disorder, OCD, acquired brain injury, or PTSD–which affects over 2 million people–ESA can help them.
Whether the ESA is taxable or not depends on the type of ESA. WCA assessments for ESA will factor in someone’s National Insurance contributions. And the ‘‘New Style” ESA arrived in 2013 for anyone making a first-time claim. New Style ESA replaces the traditional contribution-based ESA, which some people will still receive.
So, whether an ESA is or isn’t taxable depends on the type of ESA. Those who contribute towards their New Style ESA will be taxed. But those on an income-based ESA, via Universal Credit, don’t need to pay any tax towards it.
To clarify the specifics around the tax implications of ESA, let’s summarise the history of ESA and the different types:
People on ESA who are still working but for less than 16 hours a week are also entitled to support from Access to Work. For instance, someone with visual impairments may still need assistive technology like screen readers to support them during reduced hours. Applicants should check the rules about Access to Work and ESA before applying.
According to the government’s latest advice, anyone under the State Pension age who has a disability or health condition that affects how much they work can apply for the New Style Employment and Support Allowance (ESA).
Eligible individuals also need to have:
Some people may be able to receive Universal Credit and a New Style ESA at the same time. People who receive both should find their UC payments reduce by the amount of New Style ESA they receive. In effect, this would leave them with the same amount but from different funding pots.
New Style ESA is a more regular payment than Universal Credit. It includes National Insurance credits towards a State Pension or other benefits. Individuals can claim Universal Credit if they’re on a low income or they need help to pay for living costs. They must be under the State Pension age, over 18, and have 16,000 or less in savings and investments.
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Eligible people can apply for ESA online. When they do, they’ll need the following information:
Individuals can apply for New Style ESA up to 3 months before any Statutory Sick Pay ends. At present, it’s not possible to receive New Style ESA if someone is also getting Statutory Sick Pay (SSP).
Successful applicants will either receive a status of Limited Capability for Work-Related activity (LCWRA) or Limited Capability for Work (LCW) and go into one of two groups:
The time limit for receiving Employment and Support Allowance (ESA) depends on which group individuals go into. There is no specific time limit for becoming a member of the ESA support group. Once in the group, individuals cannot make new claims for income-related ESA benefits. But they will continue to receive payments until the end of any current claim.
In the work-related activity group, New Style ESA and contribution-based ESA support lasts for 365 days. All beneficiaries must report any changes in their circumstances to the DWP. They may also need to send regular fit notes.
To be eligible for ESA support, an individual must be over 16 and under the State Pension age. However, there are differences in eligibility between an income-related ESA through Universal Credit and the contribution-based ‘New Style’ ESA.
This type of ESA is means-tested. Assessors will review someone’s income and level of capital to determine their ESA level of support. They will also factor in an applicant’s partner’s income, such as a spouse. This type is not taxable.
New Style ESA isn’t means-tested. Assessors will review National Insurance contributions and each person’s individual needs to determine eligibility. New Style ESAs are taxable and the amount of tax someone has to pay depends on whether they receive other income such as occupational pensions.
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