Does anyone know why UK tax credits are called tax credits?

Question

Why not call a spade a spade? Does anyone else get irritated by the inappropriate name, never mind the system itself?

Answer 1

Because the money received as tax credits is funded solely from income tax.

In the "bad old days" when employers had to administer and pay tax credits to an employee, the money paid out was deducted from the amount of tax the employer had to pay over to the Inland Revenue (HMRC as its called now). Thus, on your payslip, it would have had tax (a deduction) and tax credit (negative deduction, i.e. a credit)

Answer 2

Everything the government pays comes from Income Tax as that how the government raise money.

The reason is down to one man, Gordon Brown, who brought the system into being while he was chancellor of the Exchequer. But under his agreement Gordon was much more than that and was in fact responsible for the UK's entire economic policy. The Revenue was his department and because of this he wanted Tax Credits placed with them so that he could control it. This was a major change as payment of benefits was controlled by the DWP, the revenue had no experience of paying money out or mass enquirers from the public. To help justify this he called it Tax Credits, the reasons were it allowed the revenue to control it, not DWP. It sounds nicer and is without a stigma as it's not a benefit it's a credit of tax and as it is 'tax' it was under his control