Monday, September 15, 2014

UK to remove migrant workers' tax-free allowance

The UK government is considering changes to the tax system which could cost low-paid migrant workers thousands of pounds a year. The changes could mean that some will find it less attractive to come and work in the UK.


The Chancellor of the Exchequer, George Osborne, is said to be planning to prevent temporary and seasonal workers from claiming their tax-free personal allowance. This would mean that they would pay tax on all their income.


Under the UK tax system, workers are not required to pay tax on the first £10,000 they earn each year. For low paid foreign workers such as fruit pickers who work for three months and earn about £6,000, this means that they pay no tax at all.


But Mr Osborne is said to be planning to require foreign workers to pay tax on all their earnings. This would mean, for a worker who earned £6,000, that they paid more than £1,000 tax, a considerable dent in their earnings.

 

 

Government revenue



The new rules would apply to all workers who are resident in the UK for less than half the year. The Treasury believes that the changes will raise £400m in revenue for the government. The change in the rules would bring the UK system into line with other countries such as the US, Canada and many European countries.


The Treasury is said to believe that the change, as well as raising revenue, will help the UK government to meet its target of reducing immigration to below 100,000 per year. The UK's Prime Minister promised to reduce immigration when he was leader of the opposition before the last election.


In a BBC interview, he said that the net level of immigration under the then Labour government had been too high (it was about 250,000 per year at the time). He said that, if elected, his government would reduce immigration to below 100,000 by the next election in 2015.


So far, things have not been going very well. Net Immigration did briefly fall to 150,000 in 2013 but is now about 210,000. Some experts believe it is likely to rise to close to 2010 levels when the next set of figures is released.

 

Worse-off



The Treasury estimates that the change to the tax system would also affect 110,000 high paid workers such as professionals and managers from other countries, but many would be able to reclaim the tax loss in the UK against their tax allowances in their home countries, leaving them no worse off.


The changes would have a greater impact on the 250,000 low-paid workers who come to the UK to work for short stints each year. These workers would be unlikely to be able to gain credits in their home countries for UK tax paid because many of them will pay little or no tax in their home countries. This would make coming to work in the UK a less attractive option for them, financially.


A Treasury spokesman said 'we believe that it is reasonable to consider whether non-residents who receive income from the UK are paying a fair share of tax on that income, in this country.'


'The government is seeking views on whether it would be appropriate to restrict the personal allowance to those resident in the UK, or people who have most of their economic connections in the UK, as is the case in many other countries including most of the EU.'


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