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Taxation - Assignment Example

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Taxation

These two systems worked independently in the past and the tax authorities maintained separate tax systems for income tax and national insurance contributions. Income tax was taxed annually in a progressive manner on individuals and corporate bodies whereby low income earners were taxed lower than high income earners (UK Government, 2012). The tax rates increased with increase in incomes of individuals. On the other hand, benefits are payments to individuals by the state. They are paid to individuals through the bank, credit union account or building societies. If one does not have any of these accounts, he/she may be paid through Post Office card account. There are various types of benefits in UK. Attendance allowance is a tax-free benefit paid to individuals of over 65 years who are mentally or physically handicapped. Two rates of up to ?71.40 are payable per week. Carer’s allowance is payable weekly in advance or every 4 or 13 weeks. Child benefit is a universal claim by parents for their children (BBC News, 2012). They are paid after every four weeks in normal situations and weekly for single parents. Tax credit is also paid weekly or after every four weeks, to families with children, whether the parents work or not. Disability living allowance is is a tax-free benefit payable after every 4 weeks to disabled people who have walking difficulties and who need someone to help them walk. Other types of benefits include crisis loans, council tax benefits, community grant care, child trust fund, etc. 2. Description of the proposed recommendation The proposed recommendation requires the integration of income tax with benefit systems. To achieve this, the UK tax system first needs to merge income tax and National insurance. These are two different ways in which income tax are paid in UK. Maintaining the two types of tax systems may be costly, less transparent and burdensome. Integrating the two systems will therefore bring forth an easier method of paying income tax in UK. The integration of income tax with National insurance contribution makes it more transparent for the tax system. The progressive taxation in UK includes 20% basic rate, 40% higher rate and 50% additional rate of income tax (Mirrlees et al, 2012). If this income tax is integrated with National Insurance Contribution, the new rates may be 31%, 41% and 51% respectively. This is a more transparent mechanism which enables individuals to pay for their taxes more easily at once rather than maintaining two separate tax accounts. The second step in the integration of benefit and tax systems is the integration of the benefit system. In this case, the benefit and tax credit systems are merged together. This is a messy and complicated mix of overlapping programmes. The programmes which need to be include programmes needed to provide support for low-income families and benefits provided to give non-means-tested support for various contingencies. The former class of programmes includes job-seekers allowance, income support, housing benefit, pension credit, child tax credit and council tax benefit. On the other hand, benefits for non-means-tested support for contingencies include state pension, disability allowance, carer’s allowance, winter fuel payment etc (Mirrlees et al, 2012). Because several families claim these benefits simultaneously, it is necessary to integrate the two systems into one manageable system. The recommended system ...Show more

Summary

Integrating the benefit and income tax systems into one system Author Institution Instructor Date 1. Description of the current system In the current UK taxation system, income tax system is different from the benefit system. Income tax system has two different types of taxes – income tax and national insurance…
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