Memorandum submitted by Roger Cockfield
1. Has HMRC considered extending PAYE to
update payment of CTC/WTC on a real time basis similar to wages
at present? My method is to use a rolling average applied to a
week one set of tax tables covering IT/NIC/WTC/CTC and CB. This
removes the creation of underpayments which are an inherent design
fault of the present system (Conclusion 4 of Inland Revenue
Standard Report: New Tax Credits, Committee of Public Accounts,
HC 782 April 2006).
2. What do I mean by rolling average? The
total childcare paid for weeks one to seven are added up and then
divided by seven. This figure, along with the rolling average
wages and family structure is applied to a week one set of tables.
One can use the spreadsheet program devised by the DWP (this generates
their Tax Benefit Model Tables) or my own spreadsheet. I prefer
my own as, inter alia, it allows for capital and working less
than 16 hours per week. My program calculates the after income
tax plus tax credits figure for week 7 by deducting the cumulative
figure for week 6 (six times the rolling average week one figure)
from the cumulative figure for week 7 (seven times the rolling
average week one figure). Both these spreadsheet programs are
small enough to be stored on a floppy disc and also cover housing
benefit and council tax benefit.
3. Considerable work will be necessary to
change an academic program to a fully working practical one. Not
least structural changes like moving NIC to a cumulative basis
will be required. The weekly upper limit on childcare costs needs
changing to a cumulative basis, so any unused balance for one
week is effectively carried forward. The enormous wasteful cost
of the £25,000 disregard can be saved to be spent on better
things.
4. COST OF
£25,000 DISREGARD FOR
TAX CREDITS
5. I have calculated the cost of the £25,000
disregard at £1,500 million This is shown in the following
calculations using the figures supplied in Hansard on 7 December
2005. It would be interesting to know which part of my calculations
HMRC disagree with and why.
6. The first estimate (of £4,470 million)
assumes all the increases are within the 37% taper. The second
estimate (of £806 million) assumes all the increases are
within the 6.67% taper. The third estimate (of £2,198 million)
assumes the lowest increase is all associated with the 37% taper,
whilst the highest increase only attracts a 5% taper. The ones
in the middle gradually reduce between these two figures.
7. These estimates are all vulnerable to
a lack of knowledge of which increases take the individual outside
the effects of the taper. My feeling is that the actual figure
will lie somewhere between the second and third estimates, say
£1,500 million.
8. POTENTIAL
FOR ABUSE
OF £25,000 DISREGARD
9. In addition to the manipulation of income
between years, a more likely cause is the change of family status
from lone parent to two earner couple. There is a substantial
incentive (£25,000 at 37% = £9,250) to then revert back
to lone parent status. There is strong evidence of the abuse of
lone parent status from the IFS. Their press release of 12 March
2006 claimed that the Government are paying tax credits and benefits
to 200,000 more lone parents than live in the UK.
ABBREVIATIONS
| CTB | Council Tax benefit
|
| CTC | Child Tax Credit |
| DWP | Department for Work and Pensions
|
| HB | Housing Benefit |
| IS | Income Support |
| LP | Lone Parent |
| MDR | Marginal deduction rate or marginal effective rate of tax
|
| WTC | Working Tax Credit |
| WFTC | Working Families Tax Credit
|
| February 2007 | |
| 
