New Enterprise Allowance - taxable or not?

A new client has been receiving New Enterprise Allowance. Please can someone tell me (with authority for the answer) whether it is taxable or not. Depending on who I ask and where I look, the answer is different. says that 'any money you get does not affect income tax' implying that it is tax-free.  However, BIM40401 says that it is business income - how then can it not affect income tax? Which is correct please?
  • It is business income, which is why it's covered by BIM40401, which says:

    "The payments are made under Section 2 of the Employment and Training Act 1973.

    Tax treatment

    New Enterprise Allowance weekly payments made to self-employed participants are exempt from income tax. They should therefore be excluded as income for the purposes of calculating the trading profits chargeable to tax.

    National Insurance treatment

    The New Enterprise Allowance weekly payments made to self-employed participants are disregarded for the purposes of Class 4 NICs.

    The individual is liable for Class 2 NICs, but in calculating their profits they may disregard New Enterprise Allowance weekly payments."

    I can see from NIM21028 and Regulation 45(2)(b)(iii) of the Social Security (Contributions) Regulations 2001 why there's no NIC, but I can't see a tax exemption anywhere.  ITTOIA s781 exempts payments under the New Deal 50Plus scheme, which was created under the same ETA 1973 section as NEA, but I can't find anything specific to NEA.

  • Isn't NEA payable to the unemployed person who starts a new business after being on JSA for six months?  I'm not sure why you might think it would be subject to CT - it is not company income.  HMRC is presumably telling you that the individual has to report it as miscellaneous income on his SA return.

    If the new business is in a company, any of the NEA that the claimant pays into the company would be capital, wouldn't it? 
  • Anonymous

    In reply to David Heaton:

    How do I apply for Enterprise allowance

  • Anonymous

    In reply to Anonymous:

    As much as I'd like to say the New Enterprise Allowance is a positive, entrepreneurial enticing experience I have to say the opposite. The mentoring at the very beginning is extremely helpful if you're not knowledgeable of business plans and cash forecasting, however when you are referred back to your Job Centre, it becomes very troublesome.

    The main issues are that to be entitled for the allowance, you have to provide continuous proofs. This can work really well for businesses such as face to face enterprises, however if your startup is internet sphere; I'd personally avoid entirely.

    The information the Job Centre requests initially is proof of trade. Internet start ups are very different to physical startups (f2f) in that there is much more involvement in building and developing your internet presence and this is something that cannot always been quantified and proved.

    In my experience, the Job Centre staff were unable to understand the extent of work that goes into making a business and that there is an awful lot of planning needed. For example, upgrading a website or application can take in excess of 2 weeks if working on it full time. The job centre required a minute by minute account of what I was doing and screenshots.

    As you can imagine, the experience has been so awful, that it would put any individual off pursuing a future past benefits.