Low Income Tax Reform Group calls for tax cuts to be focussed on families
Child Benefit clawback
The highly regarded Low Income Tax Reform Group has called on the government to review the heavily criticised the High Income Child Benefit Charge as part of its planed review of how families are taxed. The £50,00 income threshold has remained unchanged for nearly ten years. More more families are being affected by the charge who were never meant to be in its scope,.
The charge can apply to those who are not well off because the measure used to determine liability ignores factors such as whether the household has a single earner, housing costs, or family size. This means that families can be caught by the charge despite having very little disposable income, and larger families can also face high effective marginal tax rates when they are liable to the charge.
Impact on benefits of the tax and NIC changes
The LITRG is also concerned that people on low incomes may find it difficult to understand why they get less benefit from the tax and nic cuts than other taxpayers.
The main in-work benefit, universal credit (UC), is calculated based upon a claimant’s income net of tax and NIC. This means that if a claimant’s tax or NIC liability increases, the UC award may go up; equally a decrease in tax or NIC liability means the UC award may go down. If, for example, someone gets an extra £20 in their pay packet they would end only £9 better off.
Interactions such as this and the consequent complexities for individuals need to be considered when devising tax policy.