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Test and trace support payment rules detail that people who are required to stay at home and self-isolate could be entitled to a one-off payment of £500. This is designed to help people whose employment and income may be affected but the payment is not entirely free from costs.
To qualify for this payment, people must not be able to work from home in their current role while also being on a low income.
Local authorities will have discretion on if the payments are awarded to those who are not on state benefits but officially, people must also adhere to the following:
- They have been asked to self-isolate by NHS Test and Trace
- They are employed or self-employed
- They cannot work from home and will lose income as a result
- They are receiving at least one of the following: Universal Credit, Working Tax Credits, income-related Employment and Support Allowance, income-based Jobseeker’s Allowance, Income Support, Pension Credit or Housing Benefit
While the payment will undoubtedly be helpful, the government revealed they will also be subject to income tax.
The government have detailed they will be working with local authorities to work out how this will be collected but experts within the field have called on the government to review the entire process.
As Victoria Todd, the Head of the Low Incomes Tax Reform Group (LITRG), commented: “We suggest the Government reviews its decision to tax its payments.
“If they are paid gross by the local authority, recipients’ tax affairs could be vastly complicated. It is not clear how claimants of the payment will be informed about the potential tax liability.
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“If a taxpayer is employed, HMRC will most likely try and collect the tax due by adjusting their PAYE code.
“Collecting tax in this way can lead to confusion if the person does not understand why the tax taken from the other source of income is higher than expected.
“The PAYE coding facility does not always work well.
“Codes can be fiendishly complicated to understand and check – and because tax is collected on an estimated basis, you may not have paid the right tax overall by the end of the tax year.
“If insufficient tax is paid, for example because someone loses their job, we believe that HMRC will try to identify and tax the payment in the end of year reconciliation process. This could leave individuals with an unexpected tax debt.”
To make matters more complicated, LITRG feared accepting the £500 payment could have unexpected consequences for benefit claimants.
As Victoria concluded: “There are potentially some complicated interactions with existing benefit rules. We are trying to seek clarification from HMRC and DWP on these points.
“Given the current situation, keeping things worry-free and simple for individuals is more important than ever.
“Moreover, it appears the administration costs of collecting tax on the payments and dealing with the unintended consequences could outweigh the tax collected.
“It makes sense to rethink whether the payment should be free from tax. Failing that, HMRC and local authorities must ensure they make it clear to people that the payment is taxable and most importantly how and when tax will be collected.
“At present, information for recipients about how the tax will be collected is not available even though local authorities are already making payments.”
Full details on how the NHS Test and Trace system works can be found on the government’s website.
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