Home Business News Government tax plans will have greater impact on poorer families than proposed National Insurance Increases

Government tax plans will have greater impact on poorer families than proposed National Insurance Increases

by LLB Finance Reporter
18th Jan 22 10:26 am

Government plans to stick with the 20% tax band and current personal tax allowance could be more significant for lower earning families than the proposed National Insurance increase, say leading tax and advisory firm, Blick Rothenberg.

Robert Salter, a tax Director with the firm said: “The proposal by Jacob Rees-Mogg for the Government to abandon National Insurance Contributions (NIC’s) rises, scheduled for April, to assist families facing significant price rise increases misses the point and any changes should be part of a wholesale re-assessment of the UK tax system.”

He added: “The planned rise in NICs, will put additional financial pressure on those families affected and should be re-considered, increasing NICs is a very inequitable way of raising taxes.  For example, it punishes those in employment or self-employment compared to pensioners or those living off letting income. However, focusing on this single issue will have only a limited benefit to families over the coming years.”

He added: “If the Government is serious about using the tax system to support hard-pressed families, it would be sensible for them to have a wholesale re-assessment of the tax system and ‘start from scratch.’ The numerous inequities which exist in the existing system need be re-evaluated and a clearer, fairer, more equitable tax structure put in place.”

Robert said: “For example, the fact is that the Government is intending to ‘stick’ with the existing level of the personal allowance and the 20% tax band over the coming four years, could be more significant for lower earning families than the NICs increase.”

Robert added: “Specifically, the planned fixing of the personal allowance and tax bands for this period will inevitably result in higher taxes for everybody.  For example, many people in seasonal jobs or working limited part-time hours, could find themselves suddenly exceeding the £12,570 personal allowance threshold and liable to income taxes over the coming years, through a process known as ‘fiscal drag.’”

Robert said: “Similarly, many people presently paying taxes at 20% (with income up to £50,270 per annum), will move into the 40% higher tax band during the coming years simply because of wage inflation.

“Indeed, for families with children, where one partner is in receipt of child benefit, wage inflation could see them facing effective marginal tax rates of 60% – 70% – the exact rate will depend upon the number of children involved – on their income over the £50,270 threshold. This is because if one partner earns over £50,000, that higher-earning partner would become liable to something called the Higher Income Child Benefit Charge (HICBC).”

He added: “If the Government simply focuses on cancelling or postponing April’s planned increase in NICs, it will simply be a case of ‘Nero fiddling whilst Rome burned.’”

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