Criminal Trading Counts as “Work” and Illegal Receipts as “Income” for ESA Entitlement and Means-Testing

1. Introduction

Allen v The Secretary of State for Work And Pensions [2026] EWCA Civ 19 concerns the interaction between income-related Employment and Support Allowance (“ESA”) and a claimant’s undisclosed criminal enterprise. Between October 2014 and October 2015 the appellant generated at least £30,000 gross by buying and selling stolen bicycles (at a market and online), later being convicted of handling stolen goods and imprisoned. During broadly the same period (1 October 2014 to 5 April 2016) he received ESA.

The Secretary of State decided (i) the appellant had no entitlement to ESA during the relevant period because he had been “in work” that he had not declared, and (ii) he was liable to repay £9,842.15 of ESA overpayments. The First-tier Tribunal (“FTT”) allowed the appeal on the basis that criminal activity was not “work” and criminal receipts were not “income” under the relevant ESA Regulations. The Upper Tribunal (“UT”) reversed that approach, holding that illegality does not prevent an activity being “work” nor receipts being “income” for ESA purposes.

The Court of Appeal dismissed the appellant’s further appeal. The central issues were: (a) whether criminal trading can constitute “work” under regulation 40 of the Employment and Support Allowance Regulations 2008 (“the 2008 Regulations”); and (b) whether receipts from criminal activity can constitute “earnings” or “income” for means-testing under the same Regulations.

2. Summary of the Judgment

The Court of Appeal held that the appellant’s activity—buying and selling bicycles at scale—was capable of being “work” within regulation 40, notwithstanding that it was carried out criminally by dealing in stolen goods.
The Court also held that the appellant’s receipts from that activity were capable of being “earnings” and/or “income” for ESA means-testing, and there is no textual basis to read the Regulations as restricted to lawfully obtained income.
The UT was entitled to set aside the FTT decision because the FTT’s “findings” rested on a legal misdirection: treating criminality as automatically excluding “work” and “income” under the scheme, creating a contradiction with its own factual findings (including the £30,000 turnover).
The appeal was dismissed; the matter remained remitted for week-by-week assessment in accordance with the correct legal approach.

3. Analysis

3.1 Precedents Cited

Iman Alhashem v The Secretary of State for Work and Pensions [2016] EWCA Civ 395

The Court relied on Iman Alhashem v The Secretary of State for Work and Pensions [2016] EWCA Civ 395 as an authoritative description of ESA’s structure and aims. It used Alhashem to frame ESA as primarily supporting people whose capability for work is limited, while also (secondarily) facilitating future entry into work. Critically, Alhashem was used to rebut the appellant’s attempt to elevate “reintegration into lawful work” into a controlling interpretive principle that would require “work” and “income” to be read as “lawful work” and “lawful income”.

The Court emphasised (citing Alhashem, para 42) that facilitating entry into work is “not the predominant function of the benefit”. That mattered because the appellant’s purposive argument depended on treating ESA as if it were primarily rehabilitative, such that excluding criminal activity from “work”/“income” would supposedly better align with the scheme. The Court rejected that move: the Regulations’ operative provisions determine entitlement and means-testing; broad policy aspirations cannot displace their language.

Rossendale Borough Council v Hurstwood Properties (A) Ltd [2021] UKSC 16, [2022] AC 690

The Court cited Rossendale Borough Council v Hurstwood Properties (A) Ltd [2021] UKSC 16, [2022] AC 690 for the modern approach to statutory interpretation: reading legislation in context and purposively, but with the statutory text as the primary source of meaning. This reinforced the Court’s method: it focused first on the wording and structure of regulation 40 and the income/earnings provisions, then tested rival constructions against purpose and consequences.

Best v Chief Land Registrar at first instance, [2016] EWHC 1370 (Admin), and in this court at [2015] EWCA 17, [2016] QB 23

The appellant invoked Best v Chief Land Registrar at first instance, [2016] EWHC 1370 (Admin), at para 44 and in this court at [2015] EWCA 17, [2016] QB 23 for the proposition that criminality does not necessarily bar reliance on statutory rights. The Court found it unhelpful: Best turned on a distinct statutory and historical analysis of adverse possession and limitation, remote from ESA’s entitlement and means-testing rules. The Court treated Best as demonstrating that outcomes depend on the specific statutory scheme—not as authority for reading “work”/“income” narrowly in ESA.

Inland Revenue Commissioners v Aken [1990] 1 WLR 1374

The appellant also relied on Inland Revenue Commissioners v Aken [1990] 1 WLR 1374, a tax case involving earnings from prostitution. The Court held it did not assist. Aken did not decide (in terms needed here) the broader question of whether illegal profits are assessable to tax; and in any event, tax concepts of “trade” and ESA concepts of “work”/“income” for benefit disentitlement and means-testing operate in materially different statutory contexts.

Hayes v Duggan [1929] IR 406; Mann v Nash (Inspector of Taxes) [1932] 1 KB 752; Southern (Inspector of Taxes) v AB Limited [1933] 1 KB 713

These cases appeared via Aken as part of the historical debate on illegality and taxability. The Court noted them only to explain why Aken did not resolve the illegality issue in a way relevant to ESA, and therefore they did not advance the appellant’s case.

3.2 Legal Reasoning

(a) Construction of “work” in regulation 40

Regulation 40(1) treats a claimant as not entitled to ESA in any week “in which that claimant does work”. Regulation 40(7) defines “work” broadly as “any work which a claimant does, whether or not that claimant undertakes it in expectation of payment”. Regulation 40(2) sets out specific excluded activities; notably, there is no exclusion for illegality or criminality.

The Court’s reasoning proceeds in three linked steps:

Textual breadth: The language is focused on the fact of undertaking an activity, not its legality. The specific enumerated exemptions (e.g., domestic tasks) show that “work” is used broadly, making it linguistically unnatural to insert an unstated legality limitation.
Functional role in the scheme: Regulation 40 serves as a disentitlement rule based on actual working. Through regulation 44(1), a person doing work is treated as not having limited capability for work. The purpose is not to police labour-market legality, but to exclude those whose own conduct demonstrates capacity to work.
Consequences and realism: Reading “work” as “lawful work” would yield perverse outcomes: a lawful trader would be disentitled, while an unlawful trader could continue profitable trading and still receive ESA. The Court considered it unrealistic that Parliament intended to incentivise illegality or allow claimants to rely on their own criminality to avoid disentitlement.

The Court endorsed the UT’s “proviso” approach: illegality does not automatically exclude “work”, but the activity must still be the kind of thing capable of being characterised as work (the UT’s pickpocket illustration was treated as making this conceptual point, not as introducing an unworkable “sliding scale”).

(b) Construction of “income”, “earnings”, and “income other than earnings”

For income-related ESA, the claimant must meet financial conditions (WRA Schedule 1, Part 2, para 6(1)) including having income below the applicable amount and not being engaged in remunerative work. The 2008 Regulations provide for weekly calculation of “income” (regulation 90) and address “earnings” (including self-employed: regulations 92 and 97) and “income other than earnings” (regulation 91).

The appellant argued that these concepts should be confined to lawfully earned receipts. The Court rejected that for essentially the same three reasons as for “work”:

No textual hook: There is no wording in regulations 90–92, 97, or 104 indicating that unlawfully obtained receipts are excluded. “Income” is framed comprehensively; “income other than earnings” is a residual category covering income not falling within earnings.
Purpose of means-testing: Income-related ESA is designed to provide support only where means are below thresholds. Excluding illegal receipts would undermine the means test and create an arbitrary advantage for those whose funds come from unlawful sources.
Perverse incentives: A “lawful income only” interpretation would incentivise earning illegally and would allow a claimant to retain entitlement precisely because the receipts were criminally derived.

The Court also rejected a narrower interpretive argument that “income other than earnings” in regulation 91 was confined to employed earners: regulation 91 was read as dealing with two categories—(i) employed-earner earnings and (ii) income other than earnings—capable of applying across claimants.

(c) Ground 1: deference to FTT findings

The Court held the UT did not improperly interfere with findings of fact. The FTT’s “findings” that the appellant was not “fit to work” were infected by the legal premise that criminal activity cannot be “work” and criminal receipts cannot be “income”. Once that misdirection is corrected, the FTT’s own factual findings (including the scale and organisation of trading) sat uneasily with its conclusion. Therefore, the UT was entitled to set the decision aside and remit for week-by-week reassessment applying the correct legal approach.

3.3 Impact

The judgment establishes a clear principle for ESA administration and appeals: illegal or criminal activity is not automatically excluded from “work” under regulation 40 or from “income/earnings” for means-testing. Tribunals must assess the nature and extent of the activities and receipts without treating illegality as a categorical bar.

Practical implications include:

Benefit disentitlement cannot be avoided by illegality: Claimants cannot preserve ESA entitlement by asserting that their “work” was criminal and therefore irrelevant to regulation 40.
Means-testing captures illicit receipts: Where a claimant’s financial position is improved by criminal takings, those sums may be brought into account as earnings (including potentially self-employed earnings) or as income other than earnings, subject to the Regulations’ structure and week-by-week calculation.
Tribunal focus shifts to characterisation and quantification: Future disputes are likely to centre on whether the activity is in fact “work” (as an activity capable of that description), and on evidential issues around timing and weekly attribution, rather than on the legality of the activity.
Reduced administrative complexity: The Court’s approach avoids making entitlement depend on criminal law questions such as mens rea or whether a conviction exists, which would be ill-suited to benefit administration.

4. Complex Concepts Simplified

“Work” under regulation 40: Not a moral or legal approval of the activity. It means, broadly, an activity a person does that can be described as working—something organised and productive enough to show they are in fact functioning as a worker/trader, whether or not lawful.
“Remunerative work” (regulation 41): Work done for payment or in expectation of payment. The Court held the expectation/payment element can exist even where the underlying activity is criminal.
Income-related ESA vs contributory ESA: Income-related ESA (at issue here) is means-tested: your income/capital affects entitlement. Contributory ESA depends primarily on National Insurance contribution conditions, though work rules can still interact with entitlement.
“Income other than earnings”: A broad residual category capturing money coming in that is not “earnings” from employment/self-employment; the Court treated it as wide enough in principle to encompass criminal receipts where they are not better analysed as earnings.
Mixed question of fact and law: Deciding whether particular real-world conduct fits a legal category (like “work” or “income”) is not purely factual. If a tribunal applies the wrong legal test (e.g., “criminal activity can never be work”), its apparent “findings” can be set aside.

5. Conclusion

The Court of Appeal’s decision confirms that, for ESA purposes, the statutory concepts of “work” and “income” are not implicitly confined to lawful activities or lawfully acquired receipts. Regulation 40 is concerned with whether the claimant is in fact doing work (with defined exemptions that do not include criminality), and the means-test is concerned with actual resources. Reading in a “lawful only” limitation would undermine the scheme, create perverse incentives, and introduce impractical criminal-law inquiries into benefit administration.

The key takeaway is a strong, text-driven and administratively workable rule: illegality does not immunise a claimant from ESA disentitlement or means-testing. The proper questions remain (i) whether the activity is capable of being “work” on the facts, and (ii) what sums are properly attributable as weekly income/earnings under the Regulations.