Tax Credits Flashcards
What does tax credits do?
Any low-income worker who earns more than they had expected in a year over the threshold is forced to pay back some or all of their tax credits
What was the change in tax credit 2016
The cap, which limits the income households receive in certain benefits, has been reduced from £26,000 a year to £20,000 a year outside London.
Tax Credits cut
• Reason behind to introduce
1) To help families on lower pay make ends meet
2) A clear incentive to move into a job
Tax Credits cut
•Motives
1) The government says it needs to find a further £12bn in savings from annual welfare bill to meet its goal of balancing the books by 2017-2018.
2) The Treasury will gain £935 million from the cut by 2020
Tax Credits
• Benefits
Instead of seeing most of their benefits withdrawn as soon as claimants returned to work, people with families and those on low incomes would keep some or all of their benefit when they went back to work.
Tax Credits
• Disadvantages
1) The incentive to work more than 16 hours is weaker because for every additional £1 a single parent earns, they lose 41p of tax credit.
Tax Credits
• What are the critics saying
The IFS suggests the lower cap would fail to move the majority of those affected into work and would prompt them to downsize their home.
Ideologically motives of tax credits
The Treasury will gain £935million from the cut by 2020.
It is a mechanism to redistribute income to people on lower wages.
Why is the cap fair
Ministers say the level of the cap is fair because it is close to the average salary after tax.
Tax credits that is incentivising people to work
The criteria to determine eligibility to tax credits is hours worked, there is a clear incentive to find a 16-hours a week job.
Damian Green’s quote
The government was making it “as easy as possible” for claimants to get work, by offering free childcare and structuring benefits to encourage people into employment.
How much does lone parent receive with the new cap
Even with the new cap, lone parents can still receive benefits up to the equivalent salary of £25,000 or £29,000 in London.
Criticism from Damian Green for the old system
It was wrong that some claimants could receive more in benefits than the average wage.
Flaws of the tax credit cuts
• Parliamentary procedures
The cut was brought through Parliament as a statutory instrument meaning it does not have to go through all the stages of debate.
How does tax credit work
• Universal Credit System
All the originally planned the tax credit cuts will be applied to the Government’s new Universal Credit system.
JAMs and tax credits
Not only families on lower incomes rely on tax credits to make ends meet.
How many people rely on tax credits?
Nearly 40% of working families with children in Britain rely on tax credits.
3.3 million in-work families received tax credits in 2014.
Who is eligible for tax credits
• Single person
Any single person earning less than £14,000
Who is eligible for tax credits
• Couple
Any couple earning less than £19,000 and any applicant with children earning less than £40,000 may be eligible for tax credits.
Advantages for parents in tax credits
People in work and with children can claim both working and child tax credits, and out-of-work families can also apply for child tax credits.
Where does the money go for tax credits
About 4 million of the 4.6 million families on tax credits have children.
How much does child tax credits get
Child tax credits claimants get £545 per year as a flat payment, plus £2,780 per child.
Tax credits in terms of the budget
It is estimated that taxpayer will spend £30bn on tax credits in the year from April 2015 to April 2016, which is 14% of the welfare budget (£220bn)
Motives to balance the books for tax credit cuts
HMRC wants to retrieve previous overpayments in order to balance the books before benefit claimants move over to the new system of Universal Credit.
Flaws in the motive to balance the books
The government says it needs to find a further £12bn in savings from the annual welfare bill to meet its goal of balancing the books by 2017-2018.
