Since 1997, the general trend in tax credits has been away from incentives for marriage and towards families and work. The government’s consultation document on the new tax credit scheme suggests that this is the route it will continue to take, generating miles of extra red tape for business in the process.
The current tax credit regime is concerned with the payment of social security benefits through the tax system. This has helped the government to blur the parameters of the UK tax burden to the OECD. But many other governments have been doing the same thing for some time.
Underlying the new scheme is likely to be a complex set of rules on entitlement, which businesses will be expected to administer. In the case of child credits, the notion of ‘main carer’ is, in theory, a good idea.
But the concern is that the employer, who will need to make the payments, will have too great an insight into a staff member’s private life. One example is when partners separate and cannot agree who should be classified as the main carer.
There are also triggers for switching the credit off, such as when a child is in hospital ‘long-term’. But it has to be asked whether the parent (main carer) will even be aware of this rule, whether it could be independently enforced, and how the Inland Revenue would know about this type of circumstance?
The problem with these various rules is there will be a constant flow of information between the Inland Revenue, which has the misfortune to have been selected to run the brave new world of social benefits paid through the tax system, and businesses. It is another layer of administration that businesses could do without.
The government is considering different levels of benefit entitlement for the low income tax credit. These are based on a ‘big brother’ view of the number of hours individuals who have children should work and the length of time they should work if they are childless.
Apart from the social engineering issues that might be flagged up, does the government really think it is a good idea to have such a complex new system – especially as the Revenue will be required to monitor and implement it, and individuals will have to apply for the appropriate benefits?
It is not enough to dream up ‘all singing, all dancing’ systems to reduce the UK tax burden statistics if the people at whom the benefit is targeted cannot actually get through the minefield of paperwork to claim it.
Chas Roy-Chowdhury is head of taxation at ACCA.