Consultation on the payment of working tax credit by employers, including the promised move to direct payment by the Inland Revenue, has “ceased entirely,” according to tax and business representatives.

A reliable source suggested today that the Government did not want to talk about the issue until after the general election. But the Treasury told sister site TaxZone that consultation with employer representatives is “certainly not over.”

Writing on behalf of itself and eight other bodies including the ICAEW Tax Faculty and the CBI, the Chartered Institute of Taxation told paymaster general Dawn Primarolo on 16 February that employers needed notice of either the continuation of WTC Payment via Employer (PVE) into 2005/06 or a “swift announcement” of implementation of the phasing out of PVE.

In last year’s Budget Gordon Brown declared that, having accepted that the Revenue should pay WTC directly to employees, the Government would consult employers on detailed implementation of the change.

But little or no consultation appears to have taken place since the CIOT wrote to Primarolo last November, according to correspondence obtained by TaxZone.

The CIOT warned last week: “If PVE is to continue in 2005/06, employers will also need to consider their funding requirements as part of their cash flow forecasting for the coming tax year. Meanwhile, as member bodies, we need to be able to respond to our members’ enquiries as they continue to ask for further information following the Chancellor’s announcement last year.”

The letter called for an early response “so that we can inform our members appropriately.”

It added: “If you are unable to reach any decision, we hope that you will understand that we shall need to explain the position to our members in order to justify our apparent inaction on this matter.”

A CIOT spokesman told TaxZone on Monday that the Institute did not wish to comment on the 16 February letter at this stage, as the correspondence was confidential. The CIOT may comment in the future but it would “wait to see how things develop.”

Treasury response
A Treasury spokesperson told TaxZone today: “Around 6m families with children are benefiting from unprecedented levels of support provided by new tax credits. Abolishing Payment via Employer will save business around £90m a year by further simplifying the system.

“But it is very important to prepare employees for the change and to ensure that they understand that they are not losing money just because WTC no longer appears on their payslips.

“[The Revenue] is looking at various ways of conveying this message to claimants affected by the change and is consulting closely with employer representatives and other stakeholders on the detail to ensure the transition goes smoothly.

“Our consultation with employer representatives is certainly not ‘over’. The most recent consultation meeting was in November, when we explored with representatives various options for getting messages to employees about the phasing out of PVE. We have since been working on costings that will be fed into the [regulatory impact assessment] on this measure.”

WTC link to pay packet ‘is moribund’
The CIOT wrote to the paymaster general on 23 November 2004, on behalf of nine tax and business groups represented on the Revenue’s consultative committee on employer / employee issues and a working group on PVE.

That working group had met “in recent months” to discuss how phasing out of PVE could be implemented.

The CIOT said: “Whilst we understand that the Revenue have reported to you all our concerns in this area, we nevertheless felt that we should write to you with our position after 7 months of consultation.”

It recommended that in order to reduce the burdens on business, the phase-out should be completed as soon as possible; no “precedents” should be set on what employer/employee communications are necessary; and any message reaching employees should be to the point, unambiguous and reliable.

The “link to the pay packet” was no longer necessary – the self-employed, already paid directly by the Revenue, seemed to need no link to “pay” in order to realise their entitlement – nor was it particularly desirable “in a system which is as complex as this one.” The link was moribund, the CIOT said.

April 2005 start date ‘too optimistic’
The tax bodies had suggested at a meeting earlier in November that the phase-out should begin in June or July 2005 and be completed by the end of the tax year, in April 2006. They had recognised already that a start date of April 2005 was now “too optimistic”.

They thought employers would be committed to advertising the change in payment method but would not want to be forced to “communicate messages with employees”. This was not always practical, because of a lack of facilities.

The letter added: “What employers definitely cannot do is send individualised messages to employees at the point of phase-out (a method recently suggested), whether by payslip messaging or separate individualised letters or e-mails.”

Confused messages
The tax bodies had been told that “the employer communication” was to “inform employees that their tax credits will now be paid by the Revenue,” but they were concerned that employees might be confused.

The letter of 23 November continued: “However, we are also aware that the Revenue computer system is unable to produce a Stop Notice that distinguishes between (a) the Stop Notice issued because entitlement to WTC has ceased and (b) the Stop Notice issued because the payment of WTC is to be taken over by the Revenue.

“Without this detail, employers would be sending out messages that would confuse rather than clarify – employees who do not subsequently get their WTC from the Revenue, because they no longer qualify, are likely to go back to their employers and ask why they were told that payments would continue.

“Most employers recognise the need for, and do provide employees with, advice and support beyond the surface of their payslips, but would not have the knowledge to answer such questions. And from the employees’ point of view, a confusing or unreliable message is worse than no message at all.

“The only people who have the information necessary to distinguish the reason for the Stop Notice are the Inland Revenue, and therefore it seems much more logical, and effective, for them to notify the change in payment method. We understand that system architects are currently looking at such a targeted letter, and we would be happy to encourage employers to help to distribute copies of these – if that was felt to be worthwhile or useful.”

Three-strand approach
Primarolo replied on 20 December to the CIOT’s letter of 23 November. She emphasised that the policy of “making work pay – and be seen to pay” remained as important as ever.

” … It is particularly important that, once Working Tax Credit starts to be paid direct by the Inland Revenue, we maintain the visible link between work and the Working Tax Credit which PVE currently provides,” she said.

To achieve that objective the Government envisaged “three strands” to communications to WTC claimants:

• “The Inland Revenue will publicise the impending switch, targeting both employers and claimants.
• The Inland Revenue will refine the tax credit descriptors on the payments it makes to individuals’ bank accounts in order to identify separately Child Tax Credit and Working Tax Credit. These descriptors will then automatically appear on claimants’ bank and building society statements.
• We would like employers to reinforce Revenue communications by sending targeted letters to individual Working Tax Credit recipients. The additional publicity, [proposed by the tax bodies] by way of posters and articles in staff magazines, would be very helpful.”

Primarolo added that while she recognised that payslip messages may not be a practical possibility for the majority of employers, she still believed that a targeted communication from employers to individual employers [sic] could “play a key role in reinforcing the message” that the Inland Revenue will be sending to claimants.

She continued: “That is why I asked the Revenue to explore with you some options around communicating with employees by letter rather than through payslip messages. However, in light of your obvious concerns, I have asked the Revenue to look again at the options with a view to keeping any cost for employers to a minimum while still meeting the Government’s objectives for the transition.”

She did not think an “early meeting” would serve any useful purpose at that stage, but would write as soon as possible in the new year “to let you know what I have decided”.

Urgency
The CIOT wrote to Primarolo on 16 February 2005 on behalf of the tax and business representatives. They had understood that she would be consulting further with the Revenue to “consider once more the concerns which we had expressed” and that she would be writing to them.

They had not heard anything and were writing again “to ask you to pursue this with some urgency.”

The letter continued: “Operating tax credits through the payroll has significant resource implications, and therefore employers need notice of either:

• the continuation of PVE into the forthcoming tax year, or




• a swift announcement of the way in which they will be involved in phasing out PVE which unfortunately, as tabled at our meetings, is even more onerous than continuation.

“If PVE is to continue in 2005/06, employers will also need to consider their funding requirements as part of their cash flow forecasting for the coming tax year.

“Meanwhile, as member bodies, we need to be able to respond to our members’ enquiries as they continue to ask for further information following the Chancellor’s announcement last year.

“We are also concerned that the consultation process in relation to PVE has ceased entirely, with no further meetings planned, despite continuing operational problems with PVE.

“We should be grateful to receive your early response so that we can inform our members appropriately, and we very much hope that your response will be a positive one.

“If you are unable to reach any decision, we hope that you will understand that we shall need to explain the position to our members in order to justify our apparent inaction on this matter.”

Privacy
On Monday the Federation of Small Businesses said the Government had let employers down by failing to provide a timetable for relieving them of the burden of paying working tax credits to their employees.

Andrew Goodall
editor@taxzone.co.uk