Last updated: 14 October 2026
Do you have to include incapacity or sickness benefits on your tax return?
It depends on the benefit. Some state benefits are taxable and must be included, while others are tax-free. Contributory Employment and Support Allowance (ESA) is taxable after the first 28 weeks, and Statutory Sick Pay is taxable as pay. Income-related ESA, Personal Independence Payment (PIP), Attendance Allowance and Disability Living Allowance are not taxable. The old Incapacity Benefit was taxable after the first 28 weeks, except for claims that started before 13 April 1995.
Taxable and tax-free benefits
| Benefit | Taxable? |
| Statutory Sick Pay | Yes, through payroll |
| New Style (contributory) ESA | Yes, after the first 28 weeks of the main phase |
| Income-related ESA | No |
| Incapacity Benefit (historic) | Yes after 28 weeks, unless claim started before 13 April 1995 |
| Personal Independence Payment | No |
| Attendance Allowance | No |
| Universal Credit | No |
| Carer’s Allowance | Yes |
| State Pension | Yes |
| Industrial Injuries Disablement Benefit | No |
How taxable benefits are taxed
Most taxable state benefits are paid without tax deducted. HMRC usually collects the tax by adjusting your tax code on other income, such as a pension or a job. If you file Self Assessment, enter the amount in the state benefits section. Your P60U or benefit statement shows the taxable amount.
Example
Gary was off work with a back injury and received New Style ESA from October 2025. From May 2026, his ESA becomes taxable. In 2026/27, he receives £3,800 of taxable ESA and returns to work in November 2026, earning £14,000 by 5 April 2027. His total taxable income is £17,800. HMRC adjusts his tax code so tax on the ESA is collected through his pay, or he reports it on his return if he files one.
Do you need to file a return?
Not just because you receive a taxable benefit. You only need to file if you have other reasons, such as self-employment income, rental income, or income over £150,000. HMRC may send a P800 or Simple Assessment if it needs to collect tax.
Getting a refund
If you stopped work part-way through the year because of illness, you may have overpaid tax on your earlier wages. You can claim a refund through your personal tax account or form P50 if you’re not claiming a taxable benefit, or HMRC will sort it out after the year ends.
Common mistakes
- Leaving taxable ESA or Carer’s Allowance off a Self Assessment return
- Reporting PIP or Attendance Allowance as income
- Not checking the P60U figure against your benefit letters
- Ignoring a P800 calculation
Records to keep
Keep award letters, your P60U and payslips, as they show what you were paid and whether tax was deducted.
Returning to work
When you go back to work after a period on taxable ESA, give your new employer your P45 or complete a starter checklist. Your tax code may be reduced for a while to collect tax on the benefit, so check the code on your first payslips.
Frequently asked questions
Is PIP counted as income for Universal Credit?
No.
Does ESA affect my Personal Allowance?
Taxable ESA uses part of it.
Is sick pay from my employer taxable?
Yes, both SSP and contractual sick pay.
Are insurance payments for illness taxable?
Personal income protection payouts are usually tax-free.
Related: compensation for a work injury, paying tax on the State Pension and whether you need a tax return.
Talk to Accotax
Want this handled for you? Our team at Accotax can help with benefits on your tax return. See our tax refund accountants service, or contact us for a free, no-obligation quote.
This page is general guidance based on HMRC rules for the 2026/27 tax year, checked against gov.uk on 14 October 2026. It is not personal advice, so speak to an accountant about your own situation.
