Caring for a loved one is both emotionally rewarding and financially challenging. If you’re providing unpaid care for someone with a disability or health condition, Carer’s Allowance can provide crucial financial support. With significant changes taking effect from April 2025, it’s essential to understand how these updates could benefit you.

What’s Changed for 2025?

The most significant change is the substantial increase in the earnings limit. From 7 April 2025, the earnings threshold has risen from £151 to £196 per week, marking the largest increase to the earnings limit since Carer’s Allowance was introduced in 1976.

Additionally, Carer’s Allowance itself has increased from £81.90 to £83.30 per week – a 1.7% rise in line with inflation.

Understanding the New Earnings Limit

The £196 weekly limit applies to your earnings after specific deductions, not your gross pay. This distinction is crucial because it means your actual take-home pay could be higher while still qualifying for Carer’s Allowance.

What Counts as Allowable Deductions?

Your earnings are calculated after tax, National Insurance and expenses. Allowable deductions include:

• Tax and National Insurance contributions – automatically deducted from your payslip
• 50% of pension contributions – whether occupational or personal pension schemes
• Work-related expenses such as:
  • Specialist clothing or equipment required for your job
  • Travel costs between different workplaces not reimbursed by your employer
  • Business costs if you’re self-employed (computers used solely for work, etc.)

Childcare and Care Costs

If you pay someone to care for the disabled person or your children while you work, you can treat care costs that are less than or equal to 50% of your earnings as an expense. However, this doesn’t apply if the person providing care is your spouse, partner, parent, child, or sibling.

Example: If you earn £100 weekly after tax and National Insurance, and spend £60 on care costs while working, you can deduct £50 as an expense, bringing your countable earnings to £50.

Who Qualifies for Carer’s Allowance?

To be eligible, you must meet all these criteria:

• Age: 16 or over
• Caring hours: Provide at least 35 hours of care per week
• Earnings: £196 or less per week after allowable deductions
• Education: Not in full-time education (21+ hours per week)
• Residency: Normally live in England, Scotland, or Wales
• Immigration status: Not subject to immigration control

The Person You Care For Must Receive:

The person you care for must already get one of these benefits:

• Personal Independence Payment (daily living component)
• Disability Living Allowance (middle or highest care rate)
• Attendance Allowance
• Scottish Adult Disability Living Allowance
• Armed Forces Independence Payment
• Constant Attendance Allowance with Industrial Injuries or War Disablement benefits

Income That Doesn’t Count

Several types of income are excluded from the earnings calculation:

• Pension payments from occupational or private schemes
• Contributions from people you live with (excluding tenants/boarders)
• Boarding income – the first £20 weekly plus 50% of the remainder
• Loans or advances from your employer

The Reality of Fluctuating Income

If your earnings are sometimes more than £196 a week you might still be eligible for Carer’s Allowance. Your average earnings may be calculated to work out if you’re eligible.

This flexibility helps carers with irregular income, such as those in zero-hours contracts or seasonal work. However, it’s crucial to report any changes to avoid overpayments that could lead to substantial repayment demands.

Interaction with Other Benefits

Universal Credit Carer’s Allowance counts as income for Universal Credit calculations, meaning it may reduce your Universal Credit payment pound-for-pound. However, you may qualify for the Carer’s Element (£198.31 monthly), which doesn’t require you to receive Carer’s Allowance.

State Pension You cannot get the full amount of both Carer’s Allowance and your State Pension at the same time. If your State Pension is £83.30 or more weekly, you won’t receive Carer’s Allowance payments, though your Pension Credit may increase instead.

Practical Tips for Carers

Record Keeping Maintain detailed records of:

• Weekly earnings and payslips
• Work-related expenses with receipts
• Care costs and invoices
• Hours spent caring

Managing the Earnings Limit

• Consider fixed-hour contracts to avoid accidentally exceeding limits
• Plan for pay rises or bonuses that might push you over the threshold
• Understand seasonal variations in your income

Reporting Changes You must report earnings changes promptly to avoid overpayments. The system seemingly sets people up to slip over the threshold unwittingly, so regular monitoring is essential.

The Ongoing Challenge: The Cliff Edge

Despite the welcomed increase, unlike most other benefits, Carer’s Allowance doesn’t taper off if you go over the threshold. Instead, if you go just a penny over, you lose your whole entitlement.

This “cliff edge” effect remains problematic, and while the government has announced a review, no timeline for reform has been established.

Tax Implications

Carer’s Allowance is taxable income. If you are paid Carer’s Allowance and also earn close to the weekly earnings limit, for the tax year 2025-2026 you may need to pay some Income Tax. Ensure HMRC knows about your Carer’s Allowance to arrange proper tax deductions through PAYE.

How to Apply

Applications are made online through the official GOV.UK Carer’s Allowance service. You’ll need:

• Your National Insurance number
• Employment and income details
• Bank details
• Information about the person you care for, including their benefit details

The application typically takes 30 minutes to complete, and decisions are usually made within six weeks.

Looking Ahead

For the first time in decades, the earnings threshold will be linked to increases in the National Living Wage, ensuring that the limit rises in line with it. This represents a significant step toward making the system more sustainable and responsive to economic changes.

However, carers should be aware that proposed changes to Personal Independence Payment eligibility could affect future Carer’s Allowance entitlement.

Getting Professional Help

Given the complexity of benefit interactions and tax implications, consider seeking advice from:

• Qualified accountants familiar with benefit rules
• Local carers’ centres
• Citizens Advice bureaux
• Carers UK helpline

The increase in Carer’s Allowance earnings limits represents the most significant improvement to support for working carers in decades. While challenges remain, particularly around the cliff-edge effect, these changes acknowledge the vital role carers play and the financial pressures they face.

If you’re caring for someone and haven’t previously qualified due to earnings limits, or if you’re considering returning to work, now is an excellent time to review your eligibility for this crucial support.