Carers in Wales look likely to miss out on the full amount of a government bonus, warns the Low Incomes Tax Reform Group (LITRG).
The Welsh Government announced in June that it would be making a one-off flat rate payment of £500 to social care staff who provided essential care to the most vulnerable during the most challenging period of the COVID-19 pandemic to date. But the payment will be treated as earnings. As a result, tax, National Insurance and benefit interactions mean that most eligible social care workers will not see the full £500.
LITRG’s warning comes as detailed guidance on the bonus was published late last week.
Victoria Todd, Head of LITRG, said:
“We welcome that the Welsh Government has decided to recognise the hard work and commitment of social care staff through the COVID-19 pandemic. But we are concerned that some eligible workers, expecting to receive the full £500 that was announced, will be very disappointed to find they receive significantly less.
“For many years, LITRG has highlighted how interactions between tax, National Insurance and benefits can affect the value of increases or payments given by government.
“Since the £500 bonus payments are treated as earnings, the recipients will be liable to income tax and National Insurance contributions. The payments will also be taken into account for the purposes of student loan repayments and welfare benefits, including tax credits and universal credit.
“The amount that the person will actually receive depends on their individual circumstances. A social care worker who earns above the personal allowance threshold, is not claiming any benefits, does not make student loan repayments and who is a basic rate taxpayer, will likely receive £340 net of income tax and Class 1 National Insurance.1 If they are in receipt of universal credit, that £340 will reduce to £125.80 – significantly less than the £500 initially announced.2 These figures show how important it is to understand these interactions in order to design schemes that ensure recipients benefit as much as possible."
Notes for editors
1. Income tax is 20 per cent of 500 = 100; NIC is 12 per cent of 500 = 60. Therefore: 500 – 100 – 60 = 340.
2. Universal credit reduces by 63p for each £1 of additional net income. Additional net income of £340 means a reduction of £214.20 leaving the recipient with £125.80.
3. The delivery process means that employers or agencies will pay the bonus to the social care worker via payroll. The employer and agency will receive the relevant funding from the local authority concerned.
4. The payment is available to members of the paid workforce who are either:
- a paid employee of a registered care home or domiciliary care service
- an agency care worker
- an agency nurse who has worked in the same setting for 12 weeks or more
- a personal assistant paid through direct payments
5. They must have been employed in an eligible role for all or part of the period from 15 March to 31 May 2020.
6. The full guidance is available on this link.
7. Low Incomes Tax Reform Group
The LITRG is an initiative of the Chartered Institute of Taxation (CIOT) to give a voice to the unrepresented. Since 1998, LITRG has been working to improve the policy and processes of the tax, tax credits and associated welfare systems for the benefit of those on low incomes.
The CIOT is the leading professional body in the United Kingdom concerned solely with taxation. The CIOT is an educational charity, promoting education and study of the administration and practice of taxation. One of our key aims is to work for a better, more efficient, tax system for all affected by it – taxpayers, their advisers and the authorities. The CIOT’s work covers all aspects of taxation, including direct and indirect taxes and duties. The CIOT’s 19,000 members have the practising title of ‘Chartered Tax Adviser’ and the designatory letters ‘CTA’, to represent the leading tax qualification.
Contact: Hamant Verma, External Relations Officer, 0207 340 2702 HVerma [at] ciot.org.uk / Out of hours contact: George Crozier, 07740 477 374