ICB has written about and included the topic of the Winter Fuel Allowance in the monthly Wages Wednesday webinars. To recap:
The 2024 Restrictions
The universal Winter Fuel Payment was restricted from winter 2024/25 to pensioner households receiving Pension Credit or certain other income-related benefits:
The Reversals
For winter 2025, the allowance returns as a universal payment. However, means-testing by reference to qualifying benefits and credits is changing to means-testing by reference to taxable income of £35,000 or more, legislated as follows:
We know that HMRC will recover this payment where income is over £35,000:
- If the taxpayer is in PAYE, the recovery will be made by adjusting their tax code; and
- If the taxpayer is in Self-Assessment, HMRC will auto-populate the online tax return with the payment but if a paper return is submitted, it will be the taxpayer’s responsibility to include the payment on the return
The legislation to reintroduce the payment is detailed above, however, the legislation to recover the payment will be included in the Finance Bill, introduced to the UK Parliament in Autumn 2025. Ahead of this, HMRC have given an update as to the meaning of ‘taxable income’ (the £35,000). Legislation will say that the definition will be as per Section 23 of the Income Tax Act 2007. This means that reliefs such as pension contributions and Gift Aid payments cannot be deducted from the gross taxable income.
For Bookkeepers
This information is good to know and important if you are completing tax returns as a service.
Everything will be explained in the legislation, however, look for the terminology ‘Step 1’ which will indicate that the pay on which Income Tax is payable (net taxable pay) is not the same as the definition of pay HMRC will use when making the recovery (gross taxable pay). This fact will impact whether the taxpayer will have to repay their Winter Fuel / Heating Payment.
