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Where Taxpayers and Advisers Meet
LITRG sets out agenda for a ‘fair, simple, accessible’ tax system
31/03/2017, by Low Incomes Tax Reform Group, Tax Articles - General
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The Low Incomes Tax Reform Group has set out an agenda for making the tax system fairer and easier to use for taxpayers on low incomes.

Introduction

In its report entitled 'A future for the low-income taxpayer', the LITRG proposes a range of practical steps to make the tax and associated welfare systems work better for people on low incomes, whether they are employed, self-employed, pensioners or employers (as in those who employ carers).

LITRG’s view of the tax system as it works for low-income taxpayers

From pensioners to agency workers there are huge numbers of people in Britain today with low incomes but complex tax affairs. The tax system clearly is not working well enough for these groups. It needs to be simpler, better explained and easier to work out how much tax you should be paying. Also, there are numerous areas where people in apparently similar situations are, for often arbitrary reasons, taxed differently. The government needs to look again at these.

LITRG’s main recommendations

  • Ensure the move to a digital tax system does not leave vulnerable groups behind
  • Raise the national insurance threshold and universal credit work allowance alongside the income tax personal allowance to benefit those on low incomes
  • Improve quality and accuracy of information available on GOV.UK website
  • Fairer and more flexible rules for self-employed claimants of universal credit
  • Close working between UK government and devolved administrations to avoid unintended consequences of tax and welfare changes.

Digitalisation

Digitalisation is the big change currently taking place for taxpayers. LITRG fully supports the digital ambitions of HMRC, but strongly believes that the pace of change should be slowed. People must not be forced to go digital – they should be encouraged and supported to do so; but if they cannot for good reason, it is crucial that equal provision should be made for them.

Simplification

Simplification is also key. The Office of Tax Simplification has helped government make some progress since it was set up but further work is needed. Simplification cannot be achieved by looking at tax alone – it is often the interactions with the welfare system and other parts of government that create complexity. Extra steps in the policymaking process – to ensure that interactions are seamless and avoiding similar yet subtly different definitions of essentially the same thing – would be of significant benefit to all taxpayers.

Fairness

Fairness is central to the LITRG’s paper – though not in terms of the overall tax system. Quite properly, the group does not take a position on how the tax system should be structured as a whole and what rates should be levied. But it does highlight areas where changes could be made to give people in similar situations similar treatment and similar entitlements. The paper highlights situations in which this is not the case, such as a bar on claiming marriage allowance where one partner has died before a claim is made – particularly anomalous given that a separated couple may still claim – and income tax relief denied to some low-income employees because of their employer’s choice of pension scheme. Also, while increases in the income tax personal allowance have benefited many on low incomes, as well as those higher up the income scale, increases in the NI threshold and the universal credit work allowance would be better targeted ways of helping those struggling to get by.

The self-employed

There are particular issues facing the self-employed and those on the boundaries of employment and self-employment such as agency and ‘gig’ workers. It is essential that the administration systems for them are simple and fair, requiring income to be reported once only. The rules for self-employed claimants of universal credit should be refined so they are cohesive with the tax system and can deal fairly with fluctuating incomes and expenses.

Need for clarity, accuracy and accessibility

Finally, however the tax system is structured, it must be explained clearly, accurately and accessibly. The move to a centralised GOV.UK site has created significant gaps and inaccuracies. These must be tackled urgently in order to maintain reliable information sources for unrepresented taxpayers.

Useful link

The 'A future for the low-income taxpayer’ report can be downloaded from the LITRG website.

About The Author

The Low Incomes Tax Reform Group (LITRG) is an initiative of the Chartered Institute of Taxation to give a voice to those who cannot afford to pay for tax advice. LITRG comprises tax specialists from professional practice and the voluntary sector, from publishing and from HM Revenue & Customs, together with people from a welfare benefits and social policy background. Visit www.litrg.org.uk for further information.
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