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BANK I KREDYT styczeń 2008

Microeconomics 7

2.1. The United Kingdom Income taxation

The taxatiou system iii the UK is iudmdual, and there is no income splittiug among partners. Each individnal receives an income tax allowance of 4,895 ponnds per year. Incomes iu the rangę of 4,895-6,985 ponnds per year are taxed at 10%, then income up to 37,295 ponnds per year is taxed at 22%, and all income above that at the ratę of 40%. If income exceeds the level of the tax allowance (i.e. from the level of 94 ponnds per week) indmdnals are liable to pay national insnrance. Employees pay NI at the ratę of 11% wheu tlieir earuiugs are lower thau 630 ponnds per week. On income above this, the employee ratę is 1%. Emiiloyers pay National Insurance at the ratę of 12.8% (there is no ceiliug on the payment of the employer NI). The basis for the compntation of both the income tax and the national Insurance is gross eamings defined as total labonr cost minus employer's national insnrance contribntioiis.

Transfer system

All childreu iu the UK are eligible for the nniversal Child Beuefit, which in 2005 was 73.95 pounds per mouth for the first child and 49.60 ponnds per lnonth for each subsequeut child.“ 'I hen dependmg on the family income faimlies with childreu can receive support through the Child Tax Credit (CTC). This transfer, despite the name is not an integral part of the tax system, and operates morę like a beuefit. It depends on the total family income. The maximum amouut of the CTC a family can get depends on its coinposition. and is computed as the sum of the Family Premium (45.60 ponnds per mouth), and credits for each child of 141.40 ponnds per mouth. The CTC is withdrawu at 37% of the total gross family income over the level of 13,910 ponnds per year before the basie level of the family premium is reached. This is eventually also withdrawu, but only once total gross family income reaches 50,000 ponnds per year (the family premium is then withdrawn at 6.7%).

The basie means-tested beuefit system iu the UK, available to all families, is composed of four major elements. The most basie support is provided through Income Support and Job Seekers’ Allowance (JSA). I.ow income households can also obtaiu rent rebates through Housiug Beuefit and reductions in council tax payments through Council Tax Beuefit.

Income Support is paid to poorest families couditional on special circumstances (such as certain types of disability or beiug a single pareut). The uuemployed, who do not ąnalify for Income Support, can receive the Job Seekers’ Allowance, a beuefit of the same value as Income Support but couditional on both a fortniglitly confirmation of individuals’ readiness to work, and a level of resources. The basie amounts of Income Support in 2005 were: 244.45 pounds per mouth for a single person and 383.45 pounds per mouth for a couple. Slightly lower rates apply for iudividnals below the age of 18. For households whose net income exceeds 20 pounds a week, and wliere nonę of the members works morę thau 15 hours per week, for each 1 pouud of extra net income, the amouut of benefit paid through Income Support or Job Seeker’s Allowance is reduced by 1 pouud. This implies a 100% withdrawal ratę.

Housing Beuefit and Council Tax Benefit (CTB) can be claimed regardless of the liumber of hours worked, but wheu household net income exceeds the level of IS/JSA eligibility, for each 1 pouud of extra net income the value of the beuefits is reduced by 0.65 pound. Values up to which families can claim tliese benefits correspoud to the values of Income Support, with the exception that there are special premiiims for childreu of 190.90 pounds per niontli for each child. Tliese acconnt for the fact that the CTC and Child Benefit are included in the computatioii of the Housing Beuefit aud the CTB. Iucome Support, Council Tax Benefit, Housing Benefit and nou-coutributory Job Seekers’ Allowance are based on weekly income assessmeut and are not time-limited. The same applies to the CTC and the Working Tax Credit we tum to below.

Eligibility to Iucome Support in the UK ends if the uuniber of hours worked per week exceeds 15. Then, however, mdividuals and families become eligible for special additioual means-tested benefits which specifically target Iow paid employees. Since the 2003 reform the role of the iu-work support beuefit in the UK is played by the Working Tax Credit (WTC). Unlike the in-work support mechanism which preceded the coiubiuatiou of the WTC aud the CTC, uamely the Working Families' Tax Credit, the WTC is not limited only to families with childreu. IIowever, couditious regardiug the eligibility to WTC regardiug the minimum recpiired innnber of hours worked are different for tliose with and tliose without childreu. The minimum reąuired liumber of hours of work for lone pareuts aud for couples with childreu is 16, wliile for those without childreu the minimum is 30 hours per week. There is also an age requiremeut of 18 years for those with childreu and 25 for tliose without. The coniputation of the umoiiut of WTC which a family is eligible for is similar to the process concerning the CTC. The maximum amouut that families can receive is 268.90 pounds per mouth for loue pareuts and all couples (with or without children) and 135.50 pounds for single iudividnals without childreu. On top of that families with children receive a fuli-time “bonus” of 55.20 pounds if eitlier the loue pareut or any of the partners in the couple works 30 hours per week