Policy paper

2010 to 2015 government policy: personal tax reform

Updated 8 May 2015

This was published under the 2010 to 2015 Conservative and Liberal Democrat coalition government

This is a copy of a document that stated a policy of the 2010 to 2015 Conservative and Liberal Democrat coalition government. The previous URL of this page was https://www.gov.uk/government/policies/creating-a-simpler-fairer-tax-system. Current policies can be found at the GOV.UK policies list.

Issue

We want a simpler, fairer tax system that supports those on low and middle incomes while making sure that those who can best afford it make a fair contribution.

Actions

In support of a simpler, fairer tax system we announced the following actions:

• the personal allowance will be increased to £10,500 in 2015 to 2016. By April 2015, 3.2 million low-income people will have been lifted out of paying income tax altogether
• businesses and charities are entitled to a £2,000 per year employment allowance towards their employer National Insurance Contribution bill, since April 2014, to reduce the cost of hiring staff
• a new tax-free childcare scheme so that working families can pay for childcare effectively tax-free
• cutting fuel duty by 1 penny per litre and freezing it until the end of the parliament, resulting in the longest duty freeze for over 20 years. As a result of the government’s action on fuel duty since 2010, a typical motorist will have saved a total of £675 by the end of 2015 to 2016
• the beer duty escalator was cancelled and general beer duty cut by 2% from March 2013 at budget 2013, with another penny off a pint announced at budget 2014 taking effect from 24 March 2014
• married couples and civil partners where neither is a higher rate taxpayer will be allowed to transfer some of their income tax personal allowance to their spouse - worth up to £200 in 2015 to 2016
• at budget 2014 we announced that the rate of bingo duty will be reduced to 10% to support bingo clubs
• the 10% rate of tax on savings income, is being replaced with a new 0% rate from April 2015 and the band of savings income that is subject to the new 0% rate is increasing to £5,000

We are also helping local authorities in England freeze council tax by providing grants.

Background

The government’s principles for the tax system are:

• taxes should be efficient and support growth
• taxes should be certain and predictable
• taxes should be simple to understand and easy to comply with
• the tax system should be fair, reward work, support aspiration and ask the most from those who can most afford it

In March 2010 we set up the Office for Tax Simplification (OTS) to provide the government with independent advice on simplifying the UK tax system. The OTS has since conducted reviews of different aspects of the tax system, including tax reliefs, small business tax simplification, taxation of pensioners and employer share schemes.

The government has responded to the OTS reviews of pensioner taxation and unapproved employer share schemes.

We published the ‘Corporate tax road map’ in 2010, outlining how the government wants to make the UK corporate tax system more competitive. Read more about what we are doing to make corporate taxes more competitive.

You can find out more about the work we are doing to deal with tax avoidance and improve the customer experience of taxpayers.

Appendix 1: reducing National Insurance contributions for employers

This was a supporting detail page of the main policy document.

Employers have to make National Insurance Contributions (NICs) for each of their employees.

Since April 2014 every business and charity in the UK is entitled to a £2,000 Employment Allowance towards their employer National Insurance Contribution bill. This is to reduce the cost of taking on new staff for small businesses.

This allowance, which we announced at the 2013 budget, lowers the costs of employing staff. Up to 1.25 million employers will benefit, with around 450,000 taken out of paying employer NICs altogether – one third of employers. 98% of the benefit of this allowance will go to small businesses with less than 250 employees.

Appendix 2: increasing the tax-free personal allowance

This was a supporting detail page of the main policy document.

The personal allowance is the annual amount of income that a person can receive that is not subject to income tax.

The coalition agreement set out the government’s commitment to increase the personal allowance to £10,000. As announced at budget 2013, this will now be achieved by the financial year 2014 to 15 – a year ahead of schedule.

At budget 2014 we announced the personal allowance will increase to £10,500 in 2014 to 2015. At Autumn Statement 2014 we announced it would be extended to £10,600.

The government believes increasing the personal allowance is the most effective way to support those on low and middle incomes, and helps people to keep more of the money they earn.

By April 2015, 3.2 million low-income people will have been lifted out of paying income tax altogether.