Child Benefit Changes - The Oncoming Clusterfuck

The ICAEW Tax Faculty has vented its spleen about the government's proposals in the recent Budget for a tax charge on high earners in receipt of child benefit.

"Child Benefit will be withdrawn when someone in a household has an income of more than £50,000. The benefit will be withdrawn gradually; 1 per cent of Child Benefit for every extra £100 earned over £50,000. Only those with an income of more than £60,000 will lose all their Child Benefit."

In a nutshell that ICAEW doesn't think it will work, in fact the ICAEW is so unimpressed with the plans that it says:

"We think the proposals are in danger of becoming a practical disaster when they become law in the next couple of months."

In summary, here are the ICAEW's concerns:

• HMRC will be using the tax system to claw back from one individual a benefit paid to another. The tax system is based on individuals, while the benefits system is based on households. This undermines the principle of individual taxation.


• Families in similar financial situations could be treated quite differently, undermining the policy’s ‘fairness’ objective, and creating very high marginal rates of tax for some.


• Changed family circumstances could make it difficult or impossible to calculate the claw-back, or who should pay it. In the period between the benefit being paid and then clawed back, the couple could be separated, involved in an acrimonious divorce, or completely out of touch with each other.


• Taxpayers could be penalised for failing to submit information they have no access to, particularly if the relationship breaks down.


• Taxpayers could find their confidentiality breached, as HMRC may need to share information about one partner’s (or former partner’s) income and tax affairs with the other.


• The deadline to notify HMRC that you’re liable for the charge is 5 October, nearly one month before the self-assessment deadline for submitting a paper tax return and four months before the online deadline of 31 January. If one or both partners is taxed under self assessment, they probably won’t know their adjusted net income in time to meet the October deadline.


• Collecting the charge through PAYE coding adjustment could lead to delays of up to 3 years and undermine the PAYE system’s efficiency. Any coding adjustment is an estimate, so HMRC would have to repeatedly re-estimate the code.


• It could create 500,000 more self-assessed taxpayers, because taxpayers will have to assess their own liability for the new charge – very expensive for HMRC to administer.


• The extra admin burden could make it even harder for HMRC to improve service standards. HMRC’s processing and service standards are already poor, as identified by the Treasury committee last year. This charge may cause standards to fall further.


• PAYE coding errors could leave tax payers with bills for thousands of pounds, because those who don’t have the charge coded out will have to pay the bill directly the following year.


• It could breach the UK’s EC Treaty obligations; Couples with one partner who is an EEA migrant worker could be treated differently under EU rules, which renders the UK rule invalid because it is discriminatory.


• The resulting poor confidence in the tax system could hit tax compliance. Taxpayers could find their tax confidentiality breached and experience lower service standards while grappling with an even more complicated system. Their confidence in HMRC and the tax system will be undermined and there will be behaviour changes and planning to avoid the charge.

It is disappointing that Osborne is going ahead with this oncoming clusterfuck (the ICAEW is far too polite to use such a word), all the more so because (when plans for this were mooted in 2010) I warned about it in 2010:

"This absurd "Heath Robinson" claw back will increase the complexity of individuals' tax affairs, and add to the burden on the already overstretched HMRC."

What a shame that George doesn't read this site!

Tax does have to be taxing.

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