Help to Save scheme criticised by LITRG
A pressure group for people on low incomes has warned that the government’s Help to Save scheme may penalise those who are forced to withdraw funds to pay for unexpected expenses
13 Sep 2018
The scheme gives some tax credits or Universal Credit claimants the opportunity to earn tax-free bonuses on amounts saved.
The first bonus is 50% of the highest balance achieved in the first 24 months. The second bonus is 50% of the difference between the highest balance achieved in the second 24-month period and the highest balance achieved in the first 24-month period.
Commenting on the launch of Help to Save, Victoria Todd, senior technical manager of the Low Incomes Tax Reform Group (LITRG) said: ‘We are concerned about the public’s understanding of the impact of making withdrawals from the account. In most cases, making a withdrawal will reduce the bonus payable. This is because the bonus is calculated on the account balance and not just on the amount paid in.
'In some cases, a withdrawal can effectively attract a penalty of up to 50% of the withdrawal. The government should ensure their publicity efforts for the Help to Save scheme do not distract individuals from considering their longer-term savings needs.’
Eligible individuals can open a Help to Save account online or through the HMRC app, and those who do not have access to the internet can open an account by calling HMRC on 0300 322 7093.
The scheme encourages individuals to form a regular savings habit by capping the monthly amount that can be paid into the scheme to £50 and, with bonuses only paid after 24 and 48 months, the maximum an individual can save is £2,400 over four years, potentially achieving a bonus of £1,200.
Report by Rob Munro