The Association of Taxation Technicians (ATT) is calling on the Government to consider just a single provider of Help to Save accounts so they successfully target people on low incomes who may be put off by too many choices and interest rates.1
The tax experts made the suggestion in response to the Government’s consultation on the proposed Help to Save accounts.2 These accounts are aimed at encouraging low earners to put money aside to build up an emergency fund by offering them a 50 per cent government bonus on up to £50 of monthly savings made into one of these accounts.3
The ATT has suggested that the Government strongly considers the NS&I as the sole provider of these accounts. This will encourage people to save because of their familiarity with NS&I and the security associated with the organisation, as well as create a Help to Save scheme that is simple to understand and cost-effective to manage.
Yvette Nunn, Co-chair of the ATT’s Technical Steering Group, said
“We believe that the NS&I is best placed to meet all of the Government’s principles of a simple to understand, cost-effective, targeted, accessible and timely Help to Save scheme. Simplicity has to be the overriding key principle in terms of attracting the target audience to open these accounts; we suggest that if there are a range of choices and interest rates then this layer of decision making could put-off some potential savers. We believe the intended targets for these accounts are very risk-averse and would be attracted by the familiarity and security provided by an NS&I account.
“We were keen to point out in our response that our suggestion should be tested with the target population using a simple form of market research to check if they are of the same opinion.”
The ATT has concerns about the lack of details about how such accounts will be taxed. It supports a suggestion by the Low Incomes Tax Reform Group (LITRG) that an ISA approach may simplify the accounts for users when the Help to Save scheme begins, expected to be no later than April 2018.4
Yvette Nunn said:
“We are concerned by the lack of mention of tax anywhere in the consultation. Since the introduction of the Personal Savings Allowance5 in April this year, individuals now have to be much more aware of their responsibility to report any tax falling due on interest received. They need to know how the income and bonus credited to the Help to Save accounts will impact upon their tax positions. At present the Government has made no comment at all on this area. We have impressed upon them the need to address this immediately and suggest that making both sources of income exempt from tax would be a sensible idea.“
Notes for editors
- The ATT’s submission can be read here.
- The Government consultation can be read here.
- Help to Save will target working families on the lowest incomes to help them build up their savings. The scheme will be open to an estimated 3.5 million adults in receipt of universal credit with minimum weekly household earnings equivalent to 16 hours at the National Living Wage, or those in receipt of working tax credit. It will work by providing a 50 per cent government bonus on up to £50 of monthly savings into a Help to Save account. The bonus will be paid after two years with an option to save for a further two years, meaning that people can save up to £2,400 and benefit from government bonuses worth up to £1,200. Savers will be able to use the funds in any way they wish.
- The ATT has endorsed LITRG’s view that Help to Save schemes should be exempt from tax, see LITRG press release here.
- The Personal Savings Allowance was introduced in April 2016. From that date banks and building societies ceased to deduct income tax at source from interest. Instead, individuals who are basic rate taxpayers will be allowed to receive up to £1,000 worth of interest which would fall within a 0% tax band and therefore be free from tax. Higher rate taxpayer will only be entitled to receive up to £500 worth of interest in this 0% tax band. If individuals exceed their Personal Savings allowance then they will need to inform HMRC so that the correct amount of tax can be paid over.