Kennedys successfully argues that tax credits should be deducted from damages

The Compensation Recovery Unit will seek to recover benefits paid to claimants which are listed in Schedule 2 of the Social Security (Recovery of Benefits) Act 1997. However, this is not the complete story.

Defendants have long argued that benefits falling outside the Act, which the claimant would not have received but for the accident, should be deducted from awards of damages in accordance with the principles stated in Hodgson v Trapp [1989]. In Clenshaw v Tanner [2002], where Kennedys acted for the Defendant, this principle was applied to housing benefit.

Tax credits

In South v Tesco Stores Ltd [2008] Kennedys successfully argued in the Queen’s Bench Division of the High Court in Cardiff that a sum of just over £4,000 received in respect of tax credits should be deducted from the award of damages. The tax credits were made up of Child Tax Credit and Working Tax Credit. We argued that the tax credits were received as a consequence of the reduction and/or cessation of Mr South’s earned income, which resulted from the accident, and should therefore be deducted from his damages.

The Judge found as follows:

  • He rejected an argument put forward on behalf of Mr South that the Child Tax Credit was received by Mrs South, accepting that this only became payable because of the drop in Mr South’s income.
  • In addition, whilst the childcare element of the Working Tax Credit was received because of Mrs South’s eligibility by virtue of her continuing employment, Mr South still enjoyed the benefit of the receipt because it reduced his liability for the maintenance of his children.
  • In respect of the balance of the Working Tax Credit, this was a benefit paid to Mrs South and she was under no obligation to apply this money for anyone else’s benefit. Accordingly this was not to be deducted from the damages.

This case clearly confirms that Child Tax Credit and the childcare element of Working Tax Credit can and should be deducted from damages. There have been no reported cases on this point.


The table provides a summary of some of the benefits claimants could be obtaining which the CRU will not seek to recover. Only those with financial potential are mentioned and not all the eligibility criteria have been listed. In personal injury cases where there is a loss of earnings a Part 18 Request for Further Information should be made of the claimant to ascertain what non-CRU benefits he or she has received as a consequence of the accident. Defendants and their insurers may make substantial savings as a result.