Reform UK has said it will scrap income tax on any overtime above a 40-hour week for those earning less than £75,000, if elected.
The party has repeatedly backed lower taxes, having previously promised to scrap VAT on energy bills, raising the threshold at which people start paying income tax to £20,000, and cutting inheritance tax.
Reform estimates this latest proposal would cost it £5bn a year and would be paid for through the cuts it plans to make to the welfare system.
Who would benefit?
The party estimates 3.2 million people receive overtime pay and says 90 per cent of workers would benefit from its proposal.
As an example, it says a nurse working five hours of overtime a week would save more than £1,250 in tax per year under the new allowance.
A prison officer on a 40-hour contract with eight hours of overtime a week would be more than £1,300 better off a year, Reform adds.
Typically, people earning between £12,570 and £50,270 pay an income tax rate of 20 per cent, while once you start earning more than £50,270 you pay 40 per cent on every extra pound made.
Once earning over £125,140, you pay 45 per cent income tax on your additional earnings.
What are the problems?
Experts have warned of several flaws in the policy.
First of all, some tax specialists have questioned the £5bn savings figure.
Robert Salter, partner at tax and accounting firm Blick Rothenberg, said: “This is because there is no definitive data on how much overtime is actually worked in the UK and reports such as the Office for National Statistics’ labour force survey are dependent upon volunteer submissions, which make them somewhat unreliable.”
Experts also warned that there would be incentives for employers to restructure contracts.
Salter said: “The reality is if this rule were introduced, lots of employers who automatically expect their employees to work overtime would clearly look at re-structuring their pay arrangements, to ensure that regular and overtime pay were separated and distinct.”
Iain Wright, partner at Claritas Tax, warned the resource policing the policy would mean that either the cost would be far higher than £5bn or the overall benefits would be restricted.
Chris Etherington, tax partner at RSM UK, added: “HMRC is already under pressure to ensure taxpayers pay what is rightfully due and a challenge would be ensuring compliance without substantially increasing the administrative and reporting requirements on businesses.”
Experts also said that some workers would see no benefit from the policy, and that some employees with similar patterns of work would be winners or losers, depending on their employment structure.
For instance, a factory worker who is contracted for 40 hours per week but does eight hours’ overtime will be materially better off than the exact same worker on a 48-hour a week contract, Wright said.
Etherington added that the policy also did nothing for the self-employed, “who simply work whatever hours are required to make a living.”
“Reform themselves state that this will benefit 3.2 million workers who will receive a tax benefit not offered to any other workers, which creates unfairness,” he explained.
Salter concluded: “Any party which is serious about using tax policy to help drive UK Plc forward needs to create a clear, consistent tax strategy, simpler administrative requirements and clearer regulations – and this proposal would not appear to meet any of these conditions.”
Reform UK was contacted for comment.
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