CIOT: Low income workers won’t be celebrating HMRC’s New Year’s resolution

The Low Incomes Tax Reform Group (LITRG) has warned that self-employed low income workers will be unnecessarily burdened by HM Revenue and Customs’ (HMRC) proposal to move a key National Insurance (NI) contribution to the 31st January after the tax year.

The Group has responded to a consultation proposal voicing concern that the post-Christmas deadline is untimely and that such a move will handicap those used to paying by monthly instalments.

The NI contribution in question is known as ‘Class 2’2 and is a regular weekly sum payable by self-employed earners to establish their entitlement to contributory benefits such as the state retirement pension. At present they are often collected by monthly direct debit. But in a recent consultation paper, HMRC have proposed moving the due date to the 31 January after the tax year, and collecting Class 2 contributions from the self-employed at the same time as their income tax self- assessment liabilities.

LITRG’s Chairman, Anthony Thomas, said:

“Whilst we acknowledge that collecting the Class 2 NIC at the same time as self-assessment liabilities may reduce administration time, it must be similarly acknowledged that it is incumbent upon HMRC to take into account the needs and challenges faced by those on low incomes.

“Collecting this extra amount on 31 January will increase the burden of debt on people on low incomes, and adversely affect their position under the new Universal Credit (as additional costs would be included in January each year for which no relief would be given). It is unlikely to affect the proportion of self-employed people who fail to notify HMRC that they have ceased employment, a large cause of the discrepancy between debt and collection, and as a result will do nothing to decrease the amount of Class 2 debt.

“It is also clear from informal discussions HMRC held with self-employed workers that the current NI system is poorly understood, particularly with regard to Class 2 NI and benefits to which it gives entitlement. The Small Earnings Exception (exemption from Class 2 for those on the lowest profit levels), too, is barely understood. LITRG recommend that improving how taxpayers are notified and informed of their rights and obligations would be a far better option than simply changing the system.

“Our recommendation would be to collect Class 2 NI monthly, as is the case now, or alternatively via the self assessment system in two instalments in January and July. This would keep payment in line with current payment dates. The ability to choose either option is clearly a benefit to those on low incomes as a monthly payment plan would be available for those who struggle to pay the larger instalments.”

Notes to editors

1.       HMRC’s Consultation, Simplifying the National Insurance Processes for the Self Employed, can be found here.

2.       Further information on Class 2 National Insurance contributions can be found here.

3.       LITRG’s full comments can be found here.

4.       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. Everything we do is aimed at improving the tax and benefits experience of low income workers, pensioners, migrants, students, disabled people and carers.

LITRG works extensively with HM Revenue &Customs and other government departments, commenting on proposals and putting forward our own ideas for improving the system. Too often the tax and related welfare laws and administrative systems are not designed with the low-income user in mind and this often makes life difficult for those we try to help.

5.       The Chartered Institute of Taxation (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. Through our Low Incomes Tax Reform Group (LITRG), the CIOT has a particular focus on improving the tax system, including tax credits and benefits, for the unrepresented taxpayer.

The CIOT draws on our members’ experience in private practice, commerce and industry, government and academia to improve tax administration and propose and explain how tax policy objectives can most effectively be achieved. We also link to, and draw on, similar leading professional tax bodies in other countries.  The CIOT’s comments and recommendations on tax issues are made in line with our charitable objectives: we are politically neutral in our work.

The CIOT’s 17,000 members have the practising title of ‘Chartered Tax Adviser’ and the designatory letters ‘CTA’, to represent the leading tax qualification.

James Knell
External Relations Officer
D: +44 (0)20 7340 2702

Low Incomes Tax Reform Group – an initiative of the Chartered Institute of Taxation
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Chartered Institute of Taxation
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