Commenting on the Chancellor’s announcement of a further increase in the income tax personal allowance, Robin Williamson, Technical Director of the Low Incomes Tax Reform Group (LITRG), said:
“Raising the main personal allowance to £9,205 by April 2013 will improve the finances of many on low incomes. But where households are receiving means tested benefits, the improvement may be far less than expected. And where households have already experienced cuts in tax credits and other welfare benefits, the increase in the personal allowance may do no more than ameliorate their overall loss.
“Raising the personal allowance will contribute to a simpler tax system for those on lower incomes, as fewer people will be paying tax and receiving benefits at the same time. And it is a good way of enabling people paying the basic rate of tax to keep more of what they earn.
“But for those receiving means-tested benefits, much of the benefit from the tax cut is clawed back because the less tax you pay, the higher your net income, and the less you are entitled to by way of benefits. So that someone on housing benefit and council tax benefit, for example, will see only 15% of the theoretical increase flow through into their net income.”
LITRG also noted that any benefit from the increase in the allowance may be further eroded by welfare cuts elsewhere in the system, particularly in working tax credit.
Notes to editors
There is more detail on the effect of increasing the personal allowance on household incomes on LITRG’s website at http://www.litrg.org.uk/News/2012/tax-cuts.
The Low Incomes Tax Reform Group (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.
3. The CIOT is a charity and the leading professional body in the United Kingdom concerned solely with taxation. The CIOT’s primary purpose is to promote education and study of the administration and practice of taxation. One of the key aims is to achieve a better, more efficient, tax system for all affected by it – taxpayers, advisers and the authorities. The CIOT’s 15,800 members have the practising title of ‘Chartered Tax Adviser’ and the designatory letters ‘CTA’.
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