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LITRG’s 19 recommendations are aimed at making the tax system easier for unrepresented taxpayers to understand and navigate, whether they are on PAYE or in self-assessment.

Introduction

The LITRG has published a manifesto setting out the agenda the Group would like the next government to pursue for taxpayers on low incomes. The overriding theme is that those who cannot afford to pay for tax advice should receive clear guidance, and that they should not be prejudiced by:

• disproportionate “red tape” caused, for example, by a lack of joined-up working between government departments;
• impossible barriers to compliance, such as a fast-paced digital agenda without adequate support or alternatives for those left behind; or
• their falling through the gaps between the tax and benefit systems created by policymakers who do not consider people’s position in the round.

The general picture for low income taxpayers

Many people on a low income actually have quite complex tax affairs. Partly this is the inherent complexity of tax legislation, but it is also down to the way that the taxation system is administered. When things go wrong for this population, the consequences can be catastrophic from a financial point of view, leading to debt and the risk of significant health issues arising from the stress and anxiety caused.

Politically uncontentious recommendations

LITRG sees its agenda as something that can be taken up by the next government, whatever its political colours.

These should not be politically contentious recommendations. Whoever the ministers are at the Treasury and DWP in the next Parliament, LITRG is hopeful that they will be able to sign up to concepts as uncontroversial as decent, understandable guidance for taxpayers and recognition of how the tax and benefits systems interact with each other. Some of the proposals will have initial costs, but these will generally be small and the Group believes they will be counterbalanced by making it easier for taxpayers to comply with their obligations and meet HMRC’s requirements.

Particular reforms LITRG are asking the Government to consider

• Developing unified tax coding notices so tax is deducted more accurately from people with more than one income source
• Operating PAYE on the state pension
• Increasing the Universal Credit work allowance alongside the income tax personal allowance so more low-paid workers benefit from increased work incentives
• Changes to Universal Credit treatment for the self-employed to give them parity with employed claimants
• A full scale review of the rules on travel and subsistence expenses that currently make it difficult for low-paid agency workers to claim the tax relief due to them
• Expanding efforts to educate the public on tax and other finance issues, including in schools.

Summary of LITRG’s recommendations

Improve the PAYE system to bring greater clarity and accuracy for taxpayers, and lower administrative costs

• Prioritise development of a unified Notice of Coding
• Issue statements to all taxpayers at the end of the tax year showing all benefits paid and whether or not they are taxable
• Review the possibility of the DWP operating PAYE on the state pension 
• Provide a simpler mechanism for collecting small PAYE debts

Better communication and education on tax matters by government

• Upgrade guidance provided on GOV.UK to make it clearer and more comprehensive
• Improve communication and application of special relief
• Improve communication and guidance for tax credit claimants, especially where people stop being part of a couple
• Ensure that guidance around the new pensions regime includes adequate support on taxation issues
• Expand education on finance and tax within society, particularly in schools

Make paying tax as easy as possible for taxpayers with particular needs

• HMRC’s Needs Extra Support service should be promoted, expanded and similar practice extended to other government departments
• Channels other than digital must be provided for citizens who require them
• Continue/increase support for the tax charities to enable them to help those who cannot afford professional tax representation
• Continue to seek opportunities to simplify the tax system for unrepresented taxpayers

Improve how the tax and benefits systems work together

• Consider accompanying future increases in the income tax personal allowance with equivalent changes to the work allowance within Universal Credit
• Interactions between taxation and benefits must be considered fully by the Scottish and UK Governments before any further devolution takes place
• Review treatment of the self-employed under Universal Credit
• A tax system that recognises the distinct challenges of self-employment and agency work
• HMRC should make more flexible tax payment arrangements for the self-employed
• A coherent and clear approach from government to the use of umbrella companies, bringing greater certainty for the low-paid

Ensure limits and thresholds keep up with the cost of living

The rent-a-room relief should be doubled and index-linked in future.

Useful link

LITRG’s full manifesto