While Chancellor Gordon Brown justified a rise in National Insurance with tax credit for families, E&Y says he made it so difficult to get these credits that people will think twice about using them.
People have to fill in a 16-page form to get the Child Tax Credit or the Working Tax Credit, whereas NI is deducted automatically.
E&Y also pointed out the forms expect people to disclose very personal details, which may deter those middle-income taxpayers who are only entitled to a small amount of benefits. They may also feel that the threat of a £300 fine for failing to inform the Inland Revenue of relationship changes or changes of more than £10 per week in childminder costs, which it says is an unworkable hassle. In addition, husbands and wives now have to provide details of their joint income, marking a shift towards joint taxation by the back door.
‘It comes as no surprise that thousands of people have not yet returned their forms, but the irony is that while higher earners are used to dealing with complex tax returns and will therefore be more likely to claim the credits, many of the families that tax credits are intended to help could actually end with less money in their pockets,’ said Anne Redston, tax partner at Ernst & Young.
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