The coalition government has claimed that they want to simplify the tax system.
As ever, when a politician speaks, there is a world of difference between the words of the politician and reality.
George Osborne's recent proposals to stop child benefit for higher rate taxpayers are a case in point. I noted in early October that the claw back mechanism for child benefit payments will increase the complexity of individuals' tax affairs, and add to the burden on the already overstretched HMRC.
This, of course, is not the only complicating factor within Osborne's proposals. In order for the claw back to operate, the taxpayer (and the family unit) will have to be deemed to be "higher rate".
Easy enough for HMRC to deduce if the recipient (the mother) is herself a higher rate taxpayer. However, the proposal by Osborne is that the cut off will apply to the earnings of the wife and her partner together (means tested benefits are calculated on the basis of household income).
Fair enough, in principle.
Except there is one rather large problem. The independent taxation of husbands and wives has been a key principle of taxation since 1990. In order for HMRC to know if the family is higher rate they will now have to ask the husband/wife to disclose if his/her wife/husband is a higher rate taxpayer, and for the husband to disclose if his wife is receiving child benefit.
At the moment the law specifies that an individual's tax matters are an individual's responsibility, yet the government proposes (via HMRC) to fine those who do not honestly/correctly declare their partner's status wrt the new child benefit rules.
The law, as it now stands, makes those proposed fines unenforceable.
Instead of simplifying the tax system, if this is to work, the coalition will now have to pass new legislation to enforce fines on taxpayers for failing to disclose information about other taxpayers; ie the coalition will increase the complexity of the tax system.
It's a "bugger's muddle", make no mistake about that!
Tax does have to be taxing.
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