How would the Inland Revenue combine a LIT system with national income tax?
There are 2 ways to combine LIT administration with national income tax: (i) One option is for an average rate of LIT to be calculated from the different LIT rates of councils. This would be added to the national rates and deducted through the year. An end-of-year process would ensure a taxpayer pays the correct amount of national and LIT. If your local authority has set a rate of LIT lower than the national average, then you will get a rebate. If your authority has set a rate higher than the average, then you pay a little extra. (ii) Alternatively, the existing PAYE codes could be adjusted to reflect the LIT rate to be paid by each employee. Before widespread computerisation, it was thought to be too cumbersome for employers, but the development of tax credits shows this could now work. Liberal Democrats would consult to see which option taxpayers, employers and financial institutions preferred. Both options save hundreds of millions in administration – as LIT “piggybacks” on PAYE.
