DWP Cost of Living Payment 2025-2026
- MAZ
- Jun 2
- 18 min read
Index
Understanding the End of DWP Cost of Living Payments for 2025-2026
Navigating the Household Support Fund and Other Support Options
Tax Implications and Financial Planning for UK Taxpayers and Business Owners
The Audio Summary of the Key Points of the Article:
Understanding the End of DWP Cost of Living Payments and What’s Next for 2025-2026
Now, if you’re a UK taxpayer or business owner hoping for another round of Cost of Living Payments from the Department for Work and Pensions (DWP) in 2025 or 2026, I’ve got some news that might feel like a cold shower. The DWP has officially confirmed that the Cost of Living Payment scheme, which ran from 2022 to 2024, has wrapped up. No more lump-sum payments are planned for 2025 or beyond, as per their statement on GOV.UK: “DWP is not planning to make any more Cost of Living Payments.” This might sting, especially with energy bills and grocery costs still biting, but don’t lose hope—there are other support options out there, and I’ll walk you through them. Let’s break down what these payments were, why they’ve stopped, and what’s available now to help you navigate the financial landscape in 2025 and 2026.
What Were the Cost of Living Payments?
Let’s start with the basics. The Cost of Living Payments were a lifeline for millions of UK households between 2022 and 2024, designed to ease the pressure of soaring energy prices and inflation. If you were on certain means-tested benefits like Universal Credit, Pension Credit, or Child Tax Credit, you might have received payments ranging from £150 to £326, totalling up to £900 in 2023-24. Pensioners got an extra boost through Winter Fuel Payments, with top-ups of £150 or £300, and those on disability benefits like Personal Independence Payment (PIP) received £150 instalments. These payments were automatic, tax-free, and didn’t affect your other benefits—pretty handy, right?
Here’s a quick look at the 2023-24 payment structure:
Payment Type | Amount | Eligibility Period | Payment Window |
Means-Tested Benefit Payment 1 | £301 | April-May 2023 | April-May 2023 |
Means-Tested Benefit Payment 2 | £300 | October-November 2023 | October-November 2023 |
Means-Tested Benefit Payment 3 | £299 | November-December 2023 | February 2024 |
Disability Cost of Living Payment | £150 (x2) | Various dates in 2023 | June-July 2023 |
Pensioner Cost of Living Payment | £150 or £300 | Winter 2022-23, 2023-24 | November-December |
These payments went to around 8 million households, with a total cost of over £11 billion in 2023-24 alone. If you received them, you’d have seen “DWP COL” or “HMRC COLS” pop up in your bank account, depending on whether the DWP or HM Revenue and Customs (HMRC) handled it.
Why Have the Payments Stopped?
So, why’s the plug been pulled? The government’s reasoning is that the economic situation has stabilised somewhat since the peak of the cost-of-living crisis in 2022. Inflation, which hit double digits back then, is projected to hover around 3.7% by late 2025, according to the Bank of England. With benefits like Universal Credit rising by 1.7% and the State Pension by 4.1% in April 2025, the government argues that these adjustments, along with other support schemes, are enough to replace one-off payments. They’re shifting focus to “sustainable” measures, like the Household Support Fund and debt repayment reforms, which we’ll dive into shortly.
Now, don’t get me wrong—this doesn’t mean everyone’s suddenly swimming in cash. For many, the end of these payments feels like losing a safety net, especially with energy prices still unpredictable. But the Labour government, as of April 2025, is doubling down on long-term solutions like job support and energy efficiency schemes rather than temporary cash injections.
What’s Replacing the Payments in 2025-2026?
Right, so the Cost of Living Payments are history, but you’re not left high and dry. The government has rolled out alternative support to help vulnerable households. The big player here is the Household Support Fund (HSF), extended until March 2026 with £742 million in funding. This scheme, run by local councils, offers everything from direct cash payments to supermarket vouchers, depending on where you live. For example, Torbay Council is dishing out £100 one-off payments for fuel or food, while Medway has £3.98 million to distribute. The catch? It’s a bit of a postcode lottery—your local council decides who gets what and how. Check your council’s website for details, as some require applications while others proactively contact eligible residents.
Another game-changer is the Universal Credit debt repayment cap, dropped from 25% to 15% as of April 2025. This means around 1.2 million households will keep an extra £420 a year on average, as less of their benefits go towards repaying debts like budgeting advance loans. If you’re on Universal Credit and juggling debts, this could free up some breathing room.
Tax Implications for 2025-2026
None of us is a tax expert, but here’s the good news: the Cost of Living Payments were non-taxable and didn’t count towards your benefit cap or savings limits. If you’re wondering about other support in 2025-26, the same applies to most HSF payments—councils typically structure them to be tax-free. However, if you’re a business owner or self-employed, any grants or vouchers you receive through HSF might need to be declared as income if they’re tied to your business activities. Always check with HMRC or a tax accountant to be sure.
For context, let’s look at the 2025-26 tax bands to understand your overall financial picture:
Tax Band | Income Range | Tax Rate |
Personal Allowance | Up to £12,570 | 0% |
Basic Rate | £12,571 - £50,270 | 20% |
Higher Rate | £50,271 - £125,140 | 40% |
Additional Rate | Over £125,140 | 45% |
These haven’t changed since April 2024, but the personal allowance remains frozen until 2028, which could push more people into higher tax brackets if their income rises with inflation. If you’re a taxpayer receiving benefits, keep an eye on how extra income (like HSF grants) might nudge you closer to these thresholds.
What to Watch Out For
Be careful! Scammers love to prey on confusion around schemes like this. The DWP and HMRC have warned about texts or emails asking for your bank details to “apply” for payments. These are scams—official payments are always automatic. If you get a suspicious message, report it via GOV.UK and stick to official channels for updates.
Navigating the Household Support Fund and Other Support Options for 2025-2026
So, the question is, how do you actually get help now that the DWP Cost of Living Payments are gone? The Household Support Fund (HSF) is the government’s big answer for 2025-2026, and it’s a lifeline for many UK households. With £742 million allocated to local authorities in England, this fund is designed to help with essentials like food, energy, and even clothing. But here’s the catch—it’s not a one-size-fits-all deal. Each council runs its own version, so what you get depends on where you live. Let’s dive into how the HSF works, who can claim it, and other support options to keep you and your business afloat. Plus, I’ll share some practical tips to make sure you’re not missing out.
How Does the Household Support Fund Work?
Right, let’s break this down. The HSF, extended from April 2025 to March 2026, gives local councils the freedom to decide how to help vulnerable households. According to GOV.UK, the fund focuses on immediate needs—think energy bills, food, and water—but councils can also cover things like clothing, household goods, or even community support services. Some councils offer cash payments (like £100-£425), others provide vouchers for supermarkets or energy providers, and some deliver in-kind support like food parcels or boiler repairs.
For example, in Cambridgeshire, you might get £110 in cash or vouchers, plus extra holiday vouchers if you’ve got kids. East Riding of Yorkshire Council has £3.63 million to distribute, including £425 crisis payments for households in dire straits. Meanwhile, Warrington Borough Council is automatically paying past recipients in April 2025, May 2025, and February 2026. The variety is huge, so you’ll need to check your council’s website for specifics. Some councils require applications, while others proactively contact eligible residents—more on that in a bit.
Here’s a quick look at how some councils are handling the HSF in 2025-26:
Council | Allocation | Support Offered | Application Process |
Cambridgeshire | Not specified | £110 cash/vouchers, holiday vouchers | Application-based |
East Riding of Yorkshire | £3.63 million | £425 crisis payments, food/energy support | Application-based (limited) |
Warrington | Not specified | Cash/vouchers, automatic for past recipients | Automatic for eligible |
Birmingham | Not specified | Holiday vouchers, hardship grants | Application-based (closed) |
This table shows the diversity of support, but it also highlights the postcode lottery. If you’re in a cash-strapped council area, funds might run dry quickly, so timing is everything.
Who’s Eligible for the Household Support Fund?
Now, eligibility can feel like navigating a foggy moor. The HSF targets “vulnerable households,” but each council sets its own rules. Generally, you’re more likely to qualify if you’re on means-tested benefits like Universal Credit, have a low income, or are facing immediate financial hardship. Some councils, like Birmingham, prioritise families with children, offering £15 weekly supermarket vouchers per child during school holidays. Others, like Islington, focus on carers, pensioners, or those on disability benefits like PIP.
Here’s a real-world example: Fiona, a single mum in Bristol, was struggling with energy bills in early 2025. She applied for HSF support through her council’s website and received a £200 voucher for her local supermarket. Because she’s on Universal Credit, she qualified automatically, but she had to act fast before the council’s funds ran out. If you’re in a similar boat, don’t assume you’re ineligible—check with your council to see what’s available.
How to Apply for HSF Support
Okay, here’s where you need to roll up your sleeves. To access the HSF, start by visiting your local council’s website—search for “Household Support Fund” plus your council’s name. Some councils, like East Riding, have limited application windows due to high demand, so don’t dawdle. Others, like Warrington, automatically pay eligible households, especially if you’ve received HSF support before. If you’re not sure, give your council a ring or check with local charities like Citizens Advice, who often help with applications.
Now, consider this: If your council requires an application, you’ll likely need to provide proof of hardship, like recent bank statements, benefit letters, or utility bills. For instance, Medway Council asks for evidence of low income or unexpected expenses, like a broken boiler. Keep these documents handy to speed things up. If your application gets rejected, ask why—some councils allow appeals, and others can point you to alternative support like food banks or energy grants.
Other Support Options for 2025-2026
None of us wants to miss out on help we’re entitled to, so let’s look beyond the HSF. The government’s introduced a few other measures to ease the financial squeeze:
Universal Credit Debt Repayment Cap: As of April 2025, the cap on deductions from Universal Credit for debts (like advance loans) dropped from 25% to 15%. This affects 1.2 million households, saving them £420 a year on average, according to GOV.UK. If you’re repaying a loan, this means more money stays in your pocket each month.
Pension Credit Boost: Pensioners on low incomes can claim Pension Credit, which tops up weekly income to £218.15 (single) or £332.95 (couples) in 2025-26. It also unlocks Winter Fuel Payments (£200-£300) for eligible pensioners, despite recent changes limiting these to means-tested benefit recipients.
Energy Support Schemes: The Energy Company Obligation (ECO4) offers free or subsidised home insulation and heating upgrades for low-income households. Check with your energy provider or GOV.UK to see if you qualify.
For business owners, there’s also the Small Business Energy Grant, which some councils fund through HSF. For example, a café owner in Devon received £500 to offset rising electricity costs, but had to declare it as business income. Always double-check with HMRC to avoid tax surprises.
Practical Tips to Maximise Support
Here’s a bit of insider advice: don’t stop at the HSF. Many councils partner with local charities, food banks, or community groups to distribute funds, so check with organisations like StepChange or your local Citizens Advice. Also, use a benefits calculator to uncover unclaimed benefits—around £19 billion goes unclaimed annually, with Pension Credit alone worth up to £3,900 a year for eligible pensioners.
If you’re a business owner, consider energy-saving measures like LED lighting or smart thermostats to cut costs. These can be partially funded through schemes like ECO4 or local council grants. And if you’re juggling debts, explore free debt advice from MoneyHelper to create a manageable repayment plan.
Avoiding Common Pitfalls
Be careful! The HSF’s biggest downside is its inconsistency. Some councils exhaust their funds within weeks, leaving late applicants empty-handed. Others have strict eligibility rules that might exclude you even if you’re struggling. For example, a self-employed taxi driver in Leeds was denied HSF support because his income was just above the threshold, despite rising fuel costs. If this happens, ask your council about other local schemes or charities that can help.
Another trap to avoid is scams. Fraudsters are still sending fake texts or emails claiming you need to “apply” for HSF payments. Official support never requires you to share bank details via unsolicited messages. If you spot something dodgy, report it to Action Fraud or check GOV.UK for guidance.
Case Study: A Freelancer’s Experience
Take Sanjay, a freelance graphic designer in Cardiff. In 2023, he relied on £600 in Cost of Living Payments to cover his rent during a slow work period. In 2025, with those payments gone, he applied for HSF support through Cardiff Council and received a £150 energy voucher. But because he used it for his home office, his accountant warned it could be taxable as business income. Sanjay also checked his benefits eligibility and discovered he qualified for Working Tax Credit, adding £2,000 a year to his income. By acting proactively, he stayed financially stable despite the loss of DWP payments.
Tax Implications and Financial Planning for UK Taxpayers and Business Owners in 2025-2026
Now, let’s get into the nitty-gritty of what the end of DWP Cost of Living Payments means for your taxes and financial planning. Whether you’re a taxpayer scraping by on a tight budget or a business owner juggling rising costs, the shift to schemes like the Household Support Fund (HSF) can have some unexpected twists. Most of these support options are tax-free, but there are traps to watch out for, especially if you’re self-employed. Let’s unpack the tax implications, offer practical financial planning tips, and provide a step-by-step guide to ensure you’re maximising support while staying on HMRC’s good side.
Are HSF Payments Taxable?
Okay, here’s the good news first: most HSF payments are designed to be non-taxable, just like the Cost of Living Payments were. According to HMRC’s guidance on GOV.UK, grants or vouchers for personal use—think supermarket vouchers or energy bill payments—don’t count as taxable income. They also don’t affect your benefit cap or savings limits, which is a relief if you’re on Universal Credit or Pension Credit. But, and this is a big but, if you’re a business owner or self-employed, things get murkier. If you receive an HSF grant tied to your business—like support for energy costs for a home office or shop—it might need to be declared as business income. This could bump up your tax bill or affect your VAT calculations.
For example, let’s say you’re a self-employed baker in Newcastle who gets a £300 HSF grant to cover your shop’s electricity. If HMRC deems it business-related, it’s added to your taxable income, potentially pushing you into the 20% basic rate or even the 40% higher rate if you’re close to the £50,270 threshold. Always check with HMRC’s self-assessment helpline or a tax accountant to clarify. Better safe than sorry!
Here’s a quick look at the 2025-26 tax bands for context:
Tax Band | Income Range | Tax Rate |
Personal Allowance | Up to £12,570 | 0% |
Basic Rate | £12,571 - £50,270 | 20% |
Higher Rate | £50,271 - £125,140 | 40% |
Additional Rate | Over £125,140 | 45% |
The personal allowance has been frozen at £12,570 until 2028, so any extra income (even from grants) could nudge you into a higher tax bracket. This is especially true if your wages or business profits rise with inflation, projected at 3.7% for late 2025 by the Bank of England.
Financial Planning Without Cost of Living Payments
So, how do you keep your finances steady without those handy £150-£326 lump sums? It’s all about planning smart and squeezing every penny out of available support. The loss of Cost of Living Payments can feel like a punch in the wallet, especially if you’re a low-income taxpayer or a small business owner facing rising costs. Here are some strategies to stay afloat:
Check Unclaimed Benefits: Around £19 billion in benefits go unclaimed each year, according to MoneyHelper. Use a benefits calculator to see if you qualify for extras like Pension Credit (up to £3,900/year for pensioners) or Working Tax Credit.
Budget for Tax: If you’re self-employed, set aside 20-30% of any extra income (like HSF grants) for tax. Use a simple spreadsheet to track potential taxable income and avoid a surprise bill when filing your self-assessment by January 31, 2026.
Cut Energy Costs: Schemes like the Energy Company Obligation (ECO4) offer free or subsidised insulation and heating upgrades. For example, a family in Cornwall saved £200 a year on bills after getting loft insulation through GOV.UK’s ECO4 scheme. Business owners can also look into small business energy grants via local councils.
Manage Debt: The Universal Credit debt repayment cap dropping to 15% in April 2025 means 1.2 million households keep an extra £420 a year on average. If you’re struggling with other debts, contact StepChange for free advice on repayment plans.
Step-by-Step Guide: Checking and Maximising Support
Right, let’s make this actionable. Here’s a step-by-step guide to ensure you’re getting all the financial support you’re entitled to in 2025-26:
Visit Your Council’s Website: Search for “Household Support Fund” plus your council’s name (e.g., “Birmingham Household Support Fund”). Look for eligibility criteria, application forms, or automatic payment details. For example, Birmingham offers holiday vouchers, but applications closed early in 2024 due to demand.
Use a Benefits Calculator: Head to GOV.UK’s benefits calculator to check for unclaimed benefits. It takes 10 minutes and could reveal thousands in extra support, like Child Tax Credit or Carer’s Allowance.
Contact Local Charities: Organisations like Citizens Advice or local food banks often partner with councils to distribute HSF funds or offer other support. They can also help with applications if you’re stuck.
Verify Tax Implications: If you’re self-employed and receive HSF grants, check with HMRC or a tax accountant to confirm if they’re taxable. Keep records of all grants received, including amounts and purposes.
Protect Against Scams: Only trust information from GOV.UK or your council. If you get a text or email asking for bank details to “apply” for support, report it to Action Fraud.
Case Study: A Taxpayer’s Close Call
Take Morwenna, a part-time retail worker in Plymouth earning £18,000 a year. In 2023, she received £600 in Cost of Living Payments, which helped cover her rent during a tough winter. In 2025, she applied for a £150 HSF voucher from Plymouth City Council to buy groceries. She assumed it was tax-free, but her side hustle as a freelance makeup artist complicated things. The council mistakenly sent her a £200 business grant instead, which HMRC flagged as taxable income. Without proper advice, Morwenna could have faced a £40 tax bill she wasn’t expecting. By consulting a tax accountant, she clarified the grant’s status and adjusted her self-assessment to avoid penalties.
Planning for Business Owners
If you’re running a small business, the end of Cost of Living Payments might hit harder, especially with rising costs like fuel and supplies. Let’s say you’re a café owner in Sheffield. You might qualify for an HSF business grant, but you’ll need to declare it as income, which could increase your tax liability. To stay ahead:
Track Grants Separately: Keep a log of all HSF or local grants, noting whether they’re for personal or business use. This makes self-assessment easier.
Claim Business Expenses: Deduct allowable expenses like energy costs or equipment from your taxable income. Check HMRC’s business expenses guide for details.
Explore Local Grants: Some councils offer small business support through HSF, like Devon’s £500 energy grants. Contact your council or local Chamber of Commerce for details.
Avoiding Tax Pitfalls
Be careful! One common mistake is assuming all HSF payments are tax-free. If you’re self-employed and receive a grant for business purposes, failing to declare it could lead to a fine from HMRC. Another pitfall is overpaying tax due to incorrect PAYE codes. If you’ve started a side hustle or received extra income, check your tax code via GOV.UK’s income tax checker to avoid emergency tax situations.
For instance, a self-employed electrician in Liverpool received a £400 HSF grant for his workshop’s energy costs in 2024. He didn’t declare it, thinking it was tax-free like the Cost of Living Payments. HMRC later issued a £100 penalty for underreporting income. A quick call to a tax accountant could have saved him the hassle.
Summary of All the Most Important Points
The DWP Cost of Living Payments, which provided up to £900 in 2023-24, have ended, with no new payments planned for 2025 or 2026.
The Household Support Fund (HSF), extended to March 2026 with £742 million, offers cash, vouchers, or other aid through local councils to support vulnerable households.
HSF support varies by council, with examples like £110 vouchers in Cambridgeshire or £425 crisis payments in East Riding, but eligibility and application processes differ.
Most HSF payments are tax-free for personal use, but business owners must declare grants used for business purposes as taxable income.
The Universal Credit debt repayment cap dropped to 15% in April 2025, saving 1.2 million households an average of £420 annually.
The personal allowance remains frozen at £12,570 until 2028, potentially pushing more taxpayers into higher tax brackets as incomes rise.
Scammers are targeting people with fake texts or emails about applying for payments, but official support is automatic and never requires bank details upfront.
Use a benefits calculator on GOV.UK to check for unclaimed benefits like Pension Credit, which can unlock additional support like Winter Fuel Payments.
Business owners should track HSF grants separately and consult HMRC to avoid unexpected tax liabilities or penalties.
Energy support schemes like ECO4 offer free or subsidised insulation, helping households and businesses cut long-term costs.
FAQs
Click on the above arrow to expand the text
About the Author
Mr. Maz Zaheer, FCA, AFA, MAAT, MBA, is the CEO and Chief Accountant of My Tax Accountant and Total Tax Accountants—two of the UK’s leading tax advisory firms. With over 14 years of hands-on experience in UK taxation, Maz is a seasoned expert in advising individuals, SMEs, and corporations on complex tax matters. A Fellow Chartered Accountant and a prolific tax writer, he is widely respected for simplifying intricate tax concepts through his popular articles. His professional insights empower UK taxpayers to navigate their financial obligations with clarity and confidence.
Disclaimer:
The information provided in our articles is for general informational purposes only and is not intended as professional advice. While we strive to keep the information up-to-date and correct, My Tax Accountant makes no representations or warranties of any kind, express or implied, about the completeness, accuracy, reliability, suitability, or availability with respect to the website or the information, products, services, or related graphics contained in the articles for any purpose. Any reliance you place on such information is therefore strictly at your own risk. The graphs may also not be 100% reliable.
We encourage all readers to consult with a qualified professional before making any decisions based on the information provided. The tax and accounting rules in the UK are subject to change and can vary depending on individual circumstances. Therefore, My Tax Accountant cannot be held liable for any errors, omissions, or inaccuracies published. The firm is not responsible for any losses, injuries, or damages arising from the display or use of this information.
Comentários