The Low Incomes Tax Reform Group (LITRG) has published a paper setting out how the tax system can be made to work better for taxpayers on low incomes. The recommendations in the paper are divided between seven key principles LITRG believes should be firmly lodged in the minds of those designing and managing the tax system.
In the report, ‘A better deal for the low-income taxpayer’,1 the group calls for:
- Government guidance for taxpayers to be clearer and easier to navigate
- Maintenance of easily accessible non-digital channels for ‘digitally excluded’ taxpayers to interact with HMRC
- New, simpler ways of taxing ‘gig economy’ workers to be explored
- A senior official to take responsibility for policy on agency workers and umbrella companies
- Action to ensure all low-income earners benefit from tax relief on pension contributions
- A clear mechanism for taxpayers to challenge inaccurate information held by HMRC
LITRG’s 47 recommendations are grouped into seven themes, with ideas for making the system clearer and up-to-date, simple, equitable, just, accessible and responsive, joined-up and inclusive. The recommendations are not intended to be exhaustive but provide examples of changes that could be made to improve the experience of those who cannot afford to pay for professional tax services.
Moira Kelly, Chair of LITRG, said:
“This wide-ranging paper brings together recurring themes from LITRG’s work and illustrates how we think changes – both large and small – could, over time, lead to a better tax system.
“People at the lower end of the income scale have to deal not only with tax, but also with the similarly complex welfare benefits system, which interacts with tax and other systems in difficult and often surprising ways. Taxpayers in Scotland and Wales are increasingly having to deal with devolved taxes and tax administrations as well as with HMRC.
“The pandemic has drawn attention to some of the weaknesses of the tax system and areas in need of reform. In particular, some unfortunate policy interactions – positive initiatives by one part of government counteracted by negative actions elsewhere – have highlighted the need for government to be better joined up. It is no good plugging one gap, if another just opens elsewhere.
“The coronavirus crisis has also shown the need for government to provide people with accurate, detailed and up-to-date guidance to help them understand their rights and obligations. HMRC have worked at pace to design and implement COVID-19 support schemes which have helped millions of people. However, those who have contacted us have found the guidance difficult to understand and have been left confused about how all of the government offerings fit together.”
Victoria Todd, Head of LITRG, explained that one key issue identified in the new paper is HMRC’s use of data:
“Tax systems are undergoing great change, primarily due to the opportunities created by digitalisation. The impressive speed and effectiveness with which HMRC was able to introduce its huge COVID-19 support schemes – albeit that there was some rather rough justice in who was covered by them – shows what can be achieved using data.
“At a more day-to-day level digitalisation has the potential to remove burdens from individuals, but it also raises problems. For instance, where does responsibility lie between government and taxpayer for checking the accuracy of data? The risk is that people increasingly take pre-populated figures ‘as read’, thinking that the authorities already know everything about them. But what happens if data is wrong? Currently, the taxpayer can find themselves playing piggy in the middle between government and a third party, such as their employer. Clear processes are needed for resolving such disputes.
“Where data collected for one purpose is reused for another, further problems can arise. For instance, the data collected for tax might not be the complete picture for a benefits calculation; or a change in tax law affecting someone’s taxable income, the definition of which is then reused elsewhere, can affect people in other ways such as student loans entitlement or repayment.
“Increasing integration of, or reading across, systems in this way must therefore be very carefully managed, for example by introducing a step in the tax policy-making process to ensure all impacts of proposals, including non-tax impacts, are considered.”
Peter Rayney, President of the Chartered Institute of Taxation, LITRG’s parent body, welcomed the paper:
“People often assume that taxpayers on low incomes must have simple tax affairs. This is far from the truth. While the PAYE system keeps tax relatively simple for most people with a single, steady job, an increasing number of people are self-employed, have multiple employments or work in the gig economy, and have to navigate all the complexity this brings.
“While some of the challenges around being tax compliant are due to the complexity of tax law, others are down to how the system is administered. Sometimes guidance is poorly written or not kept up to date. Taxpayers who need extra help and support are not always pointed towards it soon enough.
“The CIOT is proud to support and fund LITRG’s work providing free, relevant guidance on tax matters to those who need it, and trying to make the tax and related benefits systems work better for those on low incomes. We encourage all policy-makers and those who operate the tax system to read this paper and work with LITRG to make its recommendations a reality.
“These are, on the whole, not expensive changes, but they have the potential to make a real, positive difference to the lives of taxpayers on low incomes.”
Notes for editors
1. LITRG’s full report ‘A better deal for the low-income taxpayer’ can be found at https://www.litrg.org.uk/sites/default/files/files/LITRG-A-better-deal-for-the-low-income-taxpayer-2020.pdf
2. 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: George Crozier, External Relations Manager, 07740 477 374, GCrozier [at] ciot.org.uk