Deduct only the tax Council Tax Reduction schemes allow

changelog.d/2090.fixed.md

@@ -0,0 +1 @@
+The model now deducts from Council Tax Reduction income only the income tax and National Insurance each scheme allows: in Scotland's working-age scheme the extra tax earnings cause and the notional tax on self-employed profit, and in the pensioner schemes of England, Wales and Scotland that same earnings tax, the tax on the other counted income and the notional tax on profit, with no tax on savings, dividends, rent from property or the Scottish Carer Supplement, and no High Income Child Benefit Charge, where earnings do not raise them.

policyengine_uk/tests/policy/baseline/gov/local_authorities/council_tax_reduction/council_tax_reduction_carer_support_payment.yaml

@@ -10,11 +10,14 @@
 # Neither counts the Scottish Carer Supplement, paid with CSP from 15 March
 # 2026: reg 57(1) does not list it and reg 27(1)(j)(xxib) excepts it. In law
 # the supplement's tax does not reach Council Tax Reduction either: at working
-# age SSI 2021/249 deducts tax only from earnings, and at pension age SSI
-# 2012/319 reg 31(12) disregards the tax payable on income taken into
-# account, which the supplement is not. The model deducts all income tax, so
-# the taxable supplement reaches the model's Council Tax Reduction income
-# through income tax and in no other way.
+# age the Scottish Ministers let the council deduct tax only from earnings (SSI
+# 2021/249), and at pension age the council disregards the tax payable on
+# income taken into account (SSI 2012/319 reg 31(12)), which the supplement is
+# not. The model deducts only the tax each scheme allows
+# (council_tax_reduction_tax_deduction). At working age that is the tax
+# earnings add, and at pension age the tax on the counted income with the
+# supplement above it, so without earnings the supplement does not reach the
+# model's Council Tax Reduction income.
 # Neither instrument disregards CSP above the CA amount.
 #
 # Weekly rates. 2026: CSP and CA 86.45, Scottish Carer Supplement 11.70,
@@ -248,7 +251,7 @@
     # jumps to 2,000 when the carer moves to Carer Support Payment in 2025.
     council_tax_reduction: 2_000 - 0.2 * (7_000 + 81.90 * 52 - (90.50 + 45.60) * 52)
 
-- name: Pension-age Council Tax Reduction counts Carer Support Payment, and the supplement only through tax
+- name: Pension-age Council Tax Reduction counts Carer Support Payment and deducts no tax on the supplement
   period: 2026
   absolute_error_margin: 0.01
   input:
@@ -275,13 +278,19 @@
     # first 3,967 at the Scottish starter rate of 19% and 2,566.80 at 20%.
     # The supplement adds 608.40 x 20% = 121.68 of that tax.
     income_tax: 3_967 * 0.19 + 2_566.80 * 0.20
-    # 14,000 + 4,495.40 - 1,267.09: the supplement is not added.
-    council_tax_reduction_applicable_income: 14_000 + 86.45 * 52 - 1_267.09
+    # Under SSI 2012/319 reg 31(12), the council disregards only the tax on
+    # income taken into account. The supplement is not, so the formula leaves
+    # out its tax, as the highest part of income: 14,000 + 4,495.40 - 12,570 =
+    # 5,925.40 taxable, 3,967 x 19% = 753.73 and 1,958.40 x 20% = 391.68, so
+    # 1,145.41.
+    council_tax_reduction_tax_deduction: 3_967 * 0.19 + 1_958.40 * 0.20
+    # 14,000 + 4,495.40 - 1,145.41: neither the supplement nor its tax counts.
+    council_tax_reduction_applicable_income: 14_000 + 86.45 * 52 - 1_145.41
     council_tax_reduction_applicable_amount: (256 + 48.15) * 52
     # Income is above the minimum guarantee of (238 + 48.15) x 52 = 14,879.80.
     guarantee_credit: 0
-    # 2,000 - 0.2 x (17,228.31 - 15,815.80)
-    council_tax_reduction: 1_717.50
+    # 2,000 - 0.2 x (17,349.99 - 15,815.80)
+    council_tax_reduction: 1_693.16
 
 - name: A pension-age couple's Council Tax Reduction counts the partner's Carer Support Payment
   period: 2026