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9.4A 1 Introduction |
One of the present government’s major ideas is the use of tax credits to solve problems of poverty through redistribution. The first effort embodied in the Tax Credits Act of 1999 is considered in the text at §9.4 and, as there explained, provided for two existing social security benefits, called family credit and disability working allowance, to be turned into two brand new tax credits—the workings families tax credit (WFTC) and the disabled person’s tax credit (DPTC). These represented the latest efforts to provide support for families without creating too many disincentives to work. As is clear from the text at §9.4, although a number of rules were added these were really welfare payments masquerading as tax credits. The Tax Credits Act 2002, which came into force on 6 April 2003, repeals the 1999 Act and creates two new credits the child tax credit (CTC) and the working tax credit (WTC). Each credit contains rules enhancing the value of the credits where there is a person who is severely disabled; in this way the DPTC ceased to exist as a separate allowance but has been absorbed into the rest of the system. The two credits must be kept distinct not least because CTC is usually paid directly to the main carer by the Board while WTC is usually paid by the employer through the wage packet (although the self-employed receive their WTC direct from the Board). For a detailed account of the Act, the regulations and the various policy considerations, see Lee (2003) 10 Journal of Social Security Law, pp 7–51.Most of the 2003 Act creates administrative arrangements; entitlement to the credits is set out in a mere six sections. The principal statutory instruments concerning entitlement to the credits are the Working Tax Credit (Entitlement and Maximum Rate) Regulations [2002] SI 2002/2005, The Tax Credits (Definition and Calculation of Income) Regulations [2002] SI 2002/2006, The Child Tax Credit Regulations [2002] SI 2002/2007 and The Tax Credits (Income Thresholds and Determination of Rates) Regulations [2002] SI 2002/2008. In addition there are many more of an administrative nature. |
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The introduction of these two credits means the repeal of the Children’s Tax Credit TA 1988, section 257AA introduced by FA 1999 and considered in the text at §11.5. The universal welfare benefit known as child benefit remains in existence. This leaves families with children with three possible sources of support—(1) the child benefit, which has no restrictions; (2) the child tax credit or CTC and (3) the WTC. However the WTC is significantly wider than the old rules; it is available to households consisting of single people, couples and families with children. In broad terms lone parents and couples with children must work 16 h a week; households with no children must work 30 h a week—and be over 25 years old. As with WFTC and DPTC, the value of the benefits are reduced as incomes rise. Income is determined on a household basis, a move which has rekindled old debates over the value of taxing the family unit rather than the individual. |
Sadly, the introduction of the 2003 credits was not well handled by the government. The tax profession also took some time to realise that there might be problems. In the meantime the people who really suffered were families who struggled to understand how the absurdly complicated claims form were to be filled in. It is curious that a tax system which decided not to apply self—assessment to those with simple tax affairs whose tax burdens fell mostly under schedule E, has now imposed heavy compliance burdens on those least able to afford professional help. Those families then had to wait while the administration failed to respond in keeping with its own timetable. Whether an extra year was needed or whether the scheme was too complex even for the Revenue to administer are matters to be examined by PhD students in the years to come, though one hopes that the government will learn the necessary lessons more quickly. |