My take on this is that you don’t need a Reg to support such a view, because the claimant is entitled to a reduced rate of IB under s30DD of the Contributiuons and Benefits Act: their actual entitlement is less than the full rate. It’s not like they get the full amount but have deduictions clawed back from the payments – they simply don’t qualify for full IB to start with. It’s a but like someone not having enough contributions to get a full state pension – they are only entitled to a percentage of the full rate and there is no question of treating them as if they had a full pension.
I would back this up by referring to Reg 40(5) (HB working age) which says that the full amount should be taken into account where DWP is clawing back overpayment instalments, but the Reg is silent on reductions for any other reason, which suggests that the claimant’s gross income from benefits is, by default, the full amount after any reduction in entitlement from the standard rate. Otherwise, Reg 40(5) would not have been necessary.
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