Earnings deductions worked out
The £204 limit is applied to net earnings, not to gross pay. Five things come off first, and for carers near the limit, the deductions are often the difference between keeping the payment and losing it. This page works through each deduction and then shows two full calculations.
What comes off
| Deduction | How it works |
|---|---|
| Income tax | The tax actually paid on those earnings comes off in full. |
| National Insurance | The National Insurance actually paid on those earnings comes off in full. |
| Pension contributions | Half (50%) of the carer's pension contributions comes off. |
| Care costs while working | Up to 50% of earnings spent on paying someone who is not a close relative to look after the disabled person, or the carer's children, while the carer is at work. |
| Allowable work expenses | Expenses necessarily incurred for the work itself, as accepted by the DWP. |
Worked example 1 — under the limit
Gross weekly pay £220. Income tax £6, National Insurance £5, pension contributions £40 (half = £20). Total deductions: £6 + £5 + £20 = £31. Earnings for the test: £220 − £31 = £189. That is under £204, so the full £86.45 is payable for that week (assuming all other tests are met).
Worked example 2 — over the limit
Gross weekly pay £250. Income tax £10, National Insurance £8, pension contributions £30 (half = £15). Total deductions: £10 + £8 + £15 = £33. Earnings for the test: £250 − £33 = £217. That is over £204, so no Carer's Allowance is payable for that week, even though the gross pay rose by only £30 from the first example.
Self-employed carers
For self-employed carers, earnings are generally averaged over a period rather than taken from a single week, because self-employed income is lumpy by nature. The averaging period and the exact treatment of business expenses are set by DWP guidance, so a self-employed carer near the limit should ask the DWP how their figures will be treated before assuming a weekly calculation. Keep records — invoices, expenses, and pension contribution receipts — because the deductions above can only be claimed where they can be shown.