Too many of Britain's needy families are failing to claim a new top-up tax credit because it is just to complicated to understand, according to research from a tax pressure group.The Working Families Tax Credit (WFTC) was introduced in October 1999 and was designed to make returning to work worthwhile. It replaced an existing scheme called Family Credit.
But the pressure group Low Incomes Tax Reform Group (LITRG) says there are up to 1.5 million working families who could claim the benefit, but only 1,223,000 have already done so.
It says the reasons include complexity and that many people have not heard of WFTC. This is despite the fact that the Government spent £5 million on an advertising campaign last November, which has now ended.
David Robinson, the author of the LITRG group, said those who most need to claim were likely to be "more financially unsophisticated, and yet unlikely to seek or be able to afford professional advice. It seemed to us vital that the rules and processes should be both simple and accessible."
The LITRG is particularly anxious to sort out problems for self-employed people as they have faced an administrative nightmare trying to obtain the benefit.
There have been some moves in the right direction here. At the end of last year, in response mainly to representations from the LITRG and charity TaxAid, the Inland Revenue did agree to allow make matters easier. Now self-employed people with a low turnover send in a three-line statement of account, showing receipts, expenses and profit, in line with the requirement for self-assessment. Before then, they had to send in a full set of accounts, or work through more than 30 boxes on the application form, to claim their entitlement.
But, even after that relaxation, the self-employed still face the hurdle of computing their income twice, once for self-assessment, and again for WFTC.
WFTC has led to some unfair results, particularly in the treatment of couples, according to LITRG. It says the basic and child tax credits for a lone parent with, for example, two children can be no different from those for a couple with two children of the same age and with the same after tax income. This means the children of a couple in work are less likely to be taken out of poverty by the WFTC than are the children of a working lone parent.
Although LITRG has made recommendations as to how this can be improved, it has come up against a stumbling block since the Inland Revenue says the computer system it inherited from the DSS would not be able to cope with necessary changes.
Despite this, the Government is already claiming some success and says the take of WFTC is better than Family Credit. It says some 2.2 million children are now better off as a result of WFTC. He says over 1.1 million families are already receiving the WFTC, some 300,000 more than claimed Family Credit at its peak.
Chancellor Gordon Brown said on average each family is receiving over £76 a week, which is around £30 better off than the average family would have been under Family Credit.
With the UK economy still strong, the Government wants more unemployed people to move back into the workforce. It says there are around a million vacancies and believes it is a real incentive when wages are boosted by WFTC.
Paymaster General Dawn Primarolo said: "WFTC means that working families will no longer need to apply to the social security office to take home a living income."
The amount of WFTC available is dependent on a number of factors such as income, number of hours worked each week, number and ages of children, savings and amount paid in childcare. Any family with a full-time worker is guaranteed a take-home pay at least £208 a week - equivalent to £10,700 a year.
WFTC can be contacted on 0800 597 5976
