Save content
Have you found this content useful? Use the button above to save it to your profile.
AIA

Treasury Committee queries tax credit reforms

by
26th Jan 2006
Save content
Have you found this content useful? Use the button above to save it to your profile.

By Nichola Ross Martin

The Treasury Committee examining the 2005 Pre-Budget Report has queried Gordon Brown's estimates of the cost of tax credits reforms, and asked for a review of the Chancellor's fiscal rules for managing public finances.

The package of measures announced to reform the tax credits regime in the Pre-Budget Report proposes some key changes, effective from 2006/07.

  • The disregard for increases in income between one tax year and the next will rise from £2,500 to £25,000;
  • Automatic limits are to be applied on the amount of overpaid tax credits that HMRC recovers from claimants where awards are adjusted in-year.
  • Claimants who report a fall in income during the year, will continue to have their their tax credits payments for the rest of the period adjusted to reflect their new income level. However, HMRC will assess whether they are entitled to a one-off payment for the earlier part of the year at the end of the year, rather than at the point at which they report the fall in income.
  • Claimants will be required to report more changes in circumstances than is currently the case, and to do so within one month, rather than the current three month.
  • The deadline for the return of end-of-year information will be moved forward, from the end of September to the end of August.
  • Treasury officials described the reforms to the Committee as: "A package ..of rights and responsibilities in that the Government is giving people a more generous treatment, both in terms of in-year repayments and threshold payments, but in return they are expecting, assisted by HMRC, more responsibility (to be taken by claimants).'

    The Pre-Budget Report estimates the cost of the reforms to be Revenue neutral in 2005-06 and £100 million in 2006-07, followed by savings of £250 million in 2007-08 and 2008-09.

    The Treasury Committee wants clarification from the Chancellor and Treasury about why they expected the reforms to produce a combined saving of £250 million in 2007-08 and 2008-09, given that the HMRC estimates that, in 2003-04, the £2,500 disregard cost £800 million.

    Officials responded by saying that the reforms needed to be considered as an overall package, and that it was "a balance of different measures and different timing effects" that produced the estimated savings.

    The Committee concluded: 'We are concerned that the Government has yet to provide clear and detailed information about precisely how it has concluded that its proposed package of reforms to the tax credits system will produce a combined saving of £250 million in 2007-08 and 2008-09. We accept that the more stringent requirements for claimants reporting information to HMRC should save money. However, it would also appear that the ten-fold increase in the disregard for increases in income, from £2,500 to £25,000, will be costly. We recommend that the Government provide us with a detailed breakdown of the calculations involved in reaching the estimated £250 million saving.'

    The Conservatives have endorsed the MPs' call for a detailed breakdown of the calculations. Mark Francois, shadow paymaster-general, said: "After all the long-running problems and uncertainties with Gordon Brown's pet project, the public have the right to know how much this is really going to cost."

    Another Treasury Sub-Committee is still examining the administration of tax credits and will also look closely at the implications of the latest changes announced in the Pre-Budget Report.

    Nichola Ross Martin
    www.rossmartin.co.uk

    Tags:

    Replies (1)

    Please login or register to join the discussion.

    The Business Growth Secret
    By anndartnall
    30th Jan 2006 16:21

    Even more distance between SATR filing and WTC
    The proposals put an even greater distance between the SATR filing date for the prior year and the deadline for the information to back up any WTC claim.
    I for one find this unacceptable. Surely they should both be the same? With the commonalty of year ends with the tax year, this puts the low earning self employed person at a disadvantage. Their small account with their accountant is not likely to be given a great deal of priority and if they are doing it for themselves, they are likely to be working very hard to get themselves out of claiming WTC (excluding child element) in the first place.

    Thanks (0)