Martin Lewis has spoken out to clarify which Department for Work and Pensions (DWP) claimants are required to pay income tax, addressing misconceptions about the overlap between taxpayers and benefit recipients. The financial journalist highlighted that a significant number of people receiving benefits, including Universal Credit and the state pension, also contribute to income tax.
Poll Sparks Debate on Tax and Benefits
The issue arose after Lewis conducted a poll on social media asking his followers how their standard of living compares with the UK average. The options were higher, about the same, lower, or unsure. One respondent disagreed with the poll's phrasing, arguing it "should have been directed to taxpayers only" as "they will feel worse off." The person added, "If they're on benefits, they'll definitely be better off."
Lewis responded, challenging the assumption that benefit claimants do not pay tax. He said, "There's no you either pay tax or receive benefits rule. There's a huge overlap between those two." He further explained that individuals who only receive benefits and pay no tax typically earn far less than those who pay tax and do not receive benefits.
Universal Credit and Working Claimants
The respondent clarified they were referring specifically to income tax. Lewis countered, "Again income tax too. 40 per cent on Universal Credit are working. There's also pension income which is taxable. So those on benefits do pay income tax."
Under current rules, individuals can earn up to £12,570 per year without paying income tax, thanks to the personal allowance. However, those earning above this threshold while claiming Universal Credit may still be eligible for the benefit. For Universal Credit, each £1 earned from employment (after tax and National Insurance) reduces the benefit award by 55p.
State Pension and Tax Liability
For pensioners, the state pension is taxable income. The full new state pension currently pays £241.30 per week, amounting to just over £12,550 annually—just below the personal allowance. However, with the triple lock guarantee, state pension payments rise each April by the highest of 2.5%, average earnings growth, or inflation. From April 2027, the full new state pension is expected to exceed the personal allowance, triggering income tax for many pensioners.
In response, Chancellor Rachel Reeves announced at the Autumn Budget 2025 that the government would introduce a policy ensuring that individuals whose only income is the state pension (without additional increments) would not pay income tax. The full details are pending, and top HMRC officials told MPs in January 2026 that new legislation would be required to implement the change.
