Disability in Tax and Related Benefits: The Case for a Modern and Coherent Approach

Published on 15 January 2004

The Low Incomes Tax Reform Group (LITRG) has published a report entitled 'Disability in Tax and Related Benefits: The Case for a Modern and Coherent Approach' on how the system of tax and tax related benefits impacts on people with disabilities. The LITRG's objective is to understand how and why there is no coherent and consistent 'joined-up' approach; to encourage discussion on how best to close this 'policy gap'; and to help policy makers identify key issues for decision and implementation.

Executive Summary

1.1 As its contribution to the European Year of the Disabled (EYPD), the Low Incomes Tax Reform Group (LITRG) has reviewed how disability is dealt with across the tax and related benefits system. Our objective has been to understand how and why there is no coherent and consistent ‘joined-up’ approach; to encourage discussion on how best to close this ‘policy gap’; and to help policy makers identify key issues for decision and implementation.

1.2 First, we review the legislation on tax and related benefits intended for people with disabilities, its purpose and application in practice, identifying areas where the law could be modernised. Next, we assess the delivery of their services for people with disabilities by the major tax departments and how this might be improved. Finally, we suggest some broader issues for policy makers to take on board as they apply the principles of reform underpinning the EYPD in the area of tax and related benefits.

1.3 Our review shows that while thinking about what disability means has changed significantly over the past 30 years, there has been limited acknowledgement of this changed thinking in recent tax and tax benefits legislation. While Government centrally is modernising its approach to disability issues, this has not yet knocked down into co-ordinated policy reviews in the tax departments, and the lack of co-ordination at policy level is seen in a fragmented and patchy approach to disabled people in service delivery sectors. We make recommendations designed to fill these gaps.

Details

The legislation

2.1 Looking to the Disability Discrimination Act 1995 (DDA) for the modern view of disability (chapter 2.2), we examine to what extent this approach is reflected in tax legislation. In doing so we find a plethora of different definitions of what constitutes disability for various purposes, which leads to a fragmented and disjointed approach to understanding the concept.

2.2 Modern thinking on disability focuses on the need for society to remove obstacles to full participation by the disabled in daily life (the social model), and in evaluating the individual’s response to their own situation of impairment (the biopsychosocial model) (see chapter 1.2). In this context it may surprise some to find extant tax legislation still using terms such as ‘handicapped’ and even ‘insane person or idiot’ (chapter 2.3).

2.3 Even where such antiquated terms are avoided, definitions of disability in the tax legislation are often so loose as to leave wide scope for administrative discretion. Thus the benefit of the relief or exemption in question becomes less of a statutory right, more of a privilege conferred by an administrative body. The problem is particularly acute in the case of the Council Tax Disability Reduction (CTDR) which, because it is locally administered, becomes something of a postcode lottery. The difficulties in this area are explored in chapter 2.5, and we see in chapter 3.3 how this legislative gap shows in patchy service delivery.

2.4 On the other hand, if disability is too restrictively defined, the result can be a piecemeal approach to ameliorating the harshness of a general principle. For instance, the DDA requires that disabled people should not be discriminated against in their employment. As a rule, people with disabilities need to spend more money than those without in performing the same tasks, including those related to their employment. Whether such additional expense has to come out of their own pockets, or be reimbursed by a sympathetic employer, those with disabilities should either receive an expenses deduction for tax purposes, or should not be assessed on any employer subsidy as a benefit in kind. But matters are not as simple as that. In chapter 2.6 we show how the tax system continues to impose an old and inflexible general expenses rule, while attempts are made to soften the resulting harshness by piecemeal reliefs for particular kinds of disability. We recommend a neutral approach which better recognises the extra costs incurred by disabled people in working.

2.5 We also show in that chapter how tax breaks favour some measures taken by business to adjust their premises in order to comply with their obligations under the DDA, but not others, and we recommend a general relief to cover all such adjustments.

2.6 Sometimes the tax system adopts an untargeted approach to recognising disability (chapter 2.4). The blind person’s allowance, for instance, because it is a tax allowance, is regressive in its effect, providing no relief for those on the lowest incomes, and progressively higher rates of relief as income rises. One result is low take-up, because blind people tend to be on incomes too low to benefit from tax reliefs. A different but related problem occurs where a pension payable on disablement in war is tax exempt if paid by the Government in the form of a war disablement pension, but is not always so favourably treated where the disabled person worked for some other employer.

2.7 By contrast, a better targeted approach, with more comprehensive definitions of disability, is imported into the tax system by the new working and child tax credits (chapter 2.7). The working tax credit (WTC) contains premiums payable where a person’s disability places them at a disadvantage in the labour market, but this is focused on entry into work and fails to cater adequately for those who become disabled while in work. We offer recommendations designed to improve support for this latter group.

2.8 We also review how disability is recognised within the VAT system (chapter 2.8). While Customs and Excise guidance offer an up-to-date interpretation of disability, the zero-rating and exemption of supplies extends only to equipment designed or adapted specifically for use by the disabled population, not to equipment which is not so designed but is nonetheless used by them to overcome their disabilities. For instance, certain telephone, computer or display technologies are particularly apt for people with certain disabilities, but because it is not designed specifically with them in mind, it is not eligible for relief. We recognise however that the UK authorities are somewhat hampered by the restrictive nature of the underlying European law.

2.9 Finally, we look at a few instances in more modern legislative drafting by the Tax Law Rewrite project where up-to-date views on disability are better formulated, and we recommend a review of the entire tax and VAT legislation to update definitions of ‘disabled’ and related expressions, where appropriate, by incorporating the DDA definition. Where an update is not done, the reasons should be clearly explained.

Service delivery

3.1 In the next part of our review we examine how the Government departments that are the focus of our research live up to their claims about customer service to those with disabilities (chapters 3.1 and 3.2). Concentrating on the Inland Revenue, we tested their helplines, the service offered at local tax offices (including home visits), and access to information through leaflets and the means of supplying them.

3.2 Our overall impression was of a department whose local office staff are pleased to help, but where individual goodwill needs boosting with much better training to provide both an improved understanding of the help available and, even more importantly, a stronger grasp, particularly at management level, of customers’ access needs and Government’s responsibility to meet them imaginatively. This was particularly evident in the Department’s inability, despite its claims, to clarify for people with mobility, sight or hearing impairments what services are available to them. We make a number of recommendations aimed at improving service delivery.

3.3 Examining how local authorities provide information about the CTDR (chapter 3.3), we recommend that more central guidance be issued by the DWP, and that councils be required to display more prominently to potential claimants the CTDR qualifying rules. We also consider the effect on claimants of the disability elements in working tax credits of the outsourcing of medical assessment of incapacity and disability benefits, which came in for heavy criticism from the Public Accounts Committee in April 2002 (chapter 3.4).

3.4 Finally in this Part, after comparing the structure of the DWP, Customs and Excise and the Inland Revenue, we recommend the setting up, within the Revenue, of a central monitoring group similar to the Disability Modernising Group of the DWP, and with similar co-ordinating functions (chapter 3.5). This would be supplemented by the appointment at Board level of a ‘disabilities champion’ with responsibility for the Revenue’s service delivery to people with disabilities.

A blueprint for future policy making

4.1 In the final Part we pose a series of questions raised by our report.

4.2 Given the problems with the legislation highlighted earlier, should policy makers be using the tax system at all in relation to disability issues? If so, then what do they aim to achieve through it? If practical help in overcoming obstacles, then the tax system could be better used to encourage businesses to remove obstacles and pursue excellence in their treatment of disabled customers and employees. If the aim is to provide a generic payment to cover the assumed extra costs of disability, then how well targeted are such payments at present? The CTDR assists those who need extra space to cater for their disability, but not everyone with a disability needs extra space. The disability element within WTC effectively excludes those who become disabled while in work (the Fast Track procedure being so bureaucratic as to be virtually inaccessible); and it excludes those whose disability prevents them from achieving a 16-hour working week.

4.3 We conclude with a summary of our recommendations, which aim to fill the policy gaps we have identified, correct the shortcomings in the present state of the law on tax and tax benefits, and generally to encourage policy makers within the revenue departments to put the needs of the disabled centre stage when making policy in the future.

This information has been brought to you by the Low Incomes Tax Reform Group (LITRG)

(15-01-2004)

Full disability report