Classification of Personal Tax Credits and Company Tax Credits in Statistics on Tax Receipts
This note announces changes to the classification of tax credits in the compilation of Inland Revenue statistics on net tax receipts. As a result the following statistics are being revised:
- Net receipts of income tax from October 1999
- Net receipts of corporation tax from December 2000
Personal tax credits and statistics on income tax receipts
Two new tax credits, the Working Tax Credit (WTC) and the Child Tax Credit (CTC) were introduced in April 2003. These tax credits are being classified in statistics on income tax receipts as negative taxation to the extent that the credits are less than or equal to the income tax liability of the family. Payments exceeding this liability are treated as public expenditure.
This approach is consistent with OECD guidance on the presentation of statistics on tax receipts and international best practice. It has also been adopted by the Office for National Statistics in respect of National Accounts and HM Treasury for the purposes of calculating net taxes and social security contributions as presented in the Public Finances section of the Financial Statement and Budget Report.
The Working Families' Tax Credit (WFTC) and Disabled Person's Tax Credit (DPTC) are being replaced by the WTC and CTC. Previously the WFTC and DPTC have been classified wholly as negative taxation in Inland Revenue statistics on income tax receipts. They will now be classified on the same basis as WTC and CTC and the statistics for net income receipts from October 1999 to May 2003 will be revised to ensure that the series is consistent.
The revised treatment is consistent with HM Treasury calculations of net taxes and social security contributions as presented in the Public Finances section of the Financial Statement and Budget Report. The Office for National Statistics will continue to classify WFTC and DPTC as public expenditure.
All other tax credits are classified in line with OECD guidance in Inland Revenue statistics on income tax receipts.
Company tax credits and statistics on corporation tax receipts
Payments of company tax credits are currently classified wholly as negative tax in Inland Revenue statistics on net corporation tax receipts.
This approach is now being revised so that directly payable credits will be treated as public expenditure. Any tax relief due to the enhanced expenditure (i.e. amounts in excess of 100 per cent of the expenditure) which offsets liability to corporation tax will continue to be classified as negative tax. These changes affect statistics on net corporation tax from December 2000 onwards.
As with the changes relating to income tax receipts, the revised approach is consistent with OECD guidance on the presentation of statistics on tax receipts and HM Treasury calculations of net taxes and social security contributions as presented in the Public Finances section of the Financial Statement and Budget Report. The Office for National Statistics will continue to classify any enhanced and directly payable element of company tax credits as public expenditure.
Timetable
Details of changes being made to the two series are set out in the Tables below. They will be reflected in updated series to be published on the Inland Revenue website on 21 July and in Table 2.1c of the August 2003 edition of 'Financial Statistics'
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