Universal Credit should follow tax calendar, says Aplin

ANY OCCASION on which the tax profession’s great and good get together is one that promises lively debate and, potentially, the chance to gain consensus on some of the bigger issues facing the industry.

This year’s Hardman Lecture, held by the ICAEW at Chartered Accountants’ Hall, was just such an occasion and ably delivered by the institute’s tax faculty technical committee chair Paul Aplin (pictured right).

The biggest point to come out of the evening was that the government’s Universal Credit system should be brought more closely in line with the tax calendar in order to ease the burden on small business and ensure claimants do not end up receiving less than their entitlement.

Currently, Universal Credit – which will replace the current tax credit and benefits system – is based on the date the claim is initially made. It also relies on real-time PAYE to function, which sees PAYE reported on or before the date payment is made, while changes are reported as and when they occur, rather than at the end of the financial year.

As a result, it is seldom likely to be in synchronisation with the tax month, and the current easement for small businesses to the on-or-before requirement for real-time PAYE expires in April 2014.

With the current relaxation, businesses are still required to report through the new system, but are able to do so once a month, rather than each time they pay their employees.

At present, it is unclear what will replace the easement in place for the smallest businesses, but there is still a desire from business and accountancy for some kind of allowance to continue. Ministers, though, are less keen due to the potential for any mismatch to cause claimants to lose some of their benefit.

“The entire problem could so easily have been avoided”, Aplin told attendees at Chartered Accountants’ Hall. “If Universal Credit claims followed the tax month or calendar month, there would be no mismatch. Claimants would get the right benefit. There would be no need for the on-or-before rule.”

However, in recognition that the schemes had reached a point where that is no longer possible, Aplin had an alternative suggestion.

“Why not give claimants who work for small employers the option to claim on the tax month or calendar month and make the current easement – or something like it – permanent?” he asked.

“Not an onerous requirement – does your employer employ fewer than 50 people? If yes, tick the box.

“No loss of tax or national insurance, claimants receive the correct benefit, the DWP can still spread the bulk of the load on its IT system and ministers avoid placing a wholly new and wholly unnecessary burden on small employers.”

As questions from the floor were invited, most notably HMRC chief executive Lin Homer took the opportunity to query how to better the coverage of tax in the media, noting few “good news” stories are covered by the mainstream media; something Aplin admitted was unlikely to change without a drastic overhaul of public tastes and media priorities.

Aplin did, however, praise HMRC for “being willing to go out and spend time with employers and agents to see the issues for themselves”.