It's official, child benefit is NOT taxable.
That is at least the view of GOV.UK!
However, the reality is that those on higher rate who receive it have it clawed back via tax.
This "little snafu" by HMG just goes to show how complex that tax system really is, because if the people who actually make up the rules for tax can't get it right then what hope do the rest of us have?
Tax does have to be taxing.
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Err, but it's still not taxable.
ReplyDeleteYou lose entitlement to it when your taxable income (of which it doesn't form a part) rises above a certain level. That's very different from it being taxable.
Slow news day?
(And before the usual flaming starts, I think it's a terrible policy - although, as is often the case, not for the same reasons Ken does.)
Stew G
It is clawed back as tax, and has to be declared via SA
DeleteFor those with income of more than £60,000, the tax charge is 100% of the amount of Child Benefit. For income between £50,000 and £60,000, the charge is gradually increased to 100% of the Child Benefit.
Deletehttp://www.whiteheadandaldrich.co.uk/ard/enews_article.asp?ID=3585&AID=1170&CID=1
Yes, but it's not taxable income. The tax system is just, as you rightly say, being used as the claw back mechanism.
DeleteStew G
Still would like to know how HMRC are going to make the £50000-£60000 earners comply. I'm sure most will just ignore the situation rather than check if clawback applies & if it does, register for SA.
ReplyDeleteWhen you apply for Child Benefit you have to give your NI number. It should be simple for the PAYE system to identify where an individual has £50k+ income and has claimed CB.
DeleteOf course, it will be more difficult with couples where one parent/carer has claimed CB and the other earns £50k+. Address and other details will help to an extent, but not in all cases.
There's no way that "most" won't comply, but this is one of the reasons it's a dreadful policy.
Stew G
Child benefit should be paid to those who most need and deserve it.
ReplyDeletePayments of benefit to people earning 50k plus should cease.
Payments below this level should be subject to a strict means test ensuring that those that need it get it.
How it is paid and the parameters need close scrutiny and there may be justification for limiting its payment in certain circumstances.
You need to look at the bigger picture. Politicians and journalists may justify means testing of something like Child Benefit on the grounds that it's unfair if richer parents get them. That's because they make for an easy gesture when they want to make it look like they care about fairness.
DeleteHowever, it's only unfair if you look at CB in isolation, but people who earn £50k+ pay more tax. If they get CB then it is effectively a relatively small reduction in the net amount of tax they pay. I'm sure most people would agree that, while it's quite right that anyone earning £50k should pay proportionately more tax than someone in otherwise similar circumstances but earning less, it's also appropriate that someone earning £50k with kids should pay slightly less net tax than someone without kids earning the same amount.
In other words, you don't need to means test CB because the tax system does the means testing for you.
Then there are the difficulties with means-testing: admin costs; the creation of very large marginal tax rates at certain income levels; the erosion of independent taxation of spouses/partners; stigmatisation of claimants; etc.
Stew G
(In the interests of disclosure, we claim CB in my household but nobody earns over £50k.)
Means testing costs a fortune in extra civil servants and reduces or even eliminates the incentive to save. As I have just discovered, as I near retirement - although if a non-contributory state pension replaces Pension Credit as is now promised then my hard-saved money might be worth something after all.
ReplyDeleteAny means testing of the WFA, bus pass, etc would just reintroduce the unfairness.
Tax benefits but make them universal. Minimum admin. costs are the result. The tax collectors/other officials can then go and do something more socially useful, such as creating wealth to maintain a civilised society, instead of consuming wealth, which is a fair description of what the public sector does.
consuming wealth, which is a fair description of what the public sector does."
DeleteI was 100% with you until you said this.
This oft-repeates claim seems to be primarily based on the misconception that "wealth" and "profiys" are the same thing.
Once you accept that they are not, how can you possibly say that, for example, protecting the country from invasion, maintaining law and order, making a sick person well or educating a child "consume" wealth rather than "create it"?
Stew G
If someone is earning 50k and someone is earning 15k surely it's fair to see the 15k earner receive more child benefits compared to the higher earner despite of the taxation!
ReplyDeleteBut why is it appropriate to disregard the taxation?
DeleteTell me, do you disagree with any of the following statements about a person with children who earns £50k per year? If so, why?
1) Their overall net tax bill is equal to tax minus child benefit.
2) It is fair that their overall net tax bill should be more than that of someone (with our without kids) earning £15k.
3) It is fair that their overall net tax bill should be less than that of someone without kids who earns £50k.
4) Not means testing their child benefit is entirely consistent with 2 and 3.
5) Reducing their child benefit through means testing is inconsistent with 3.
Stew G
The first part of this (re Schelling) may interest you, by the way:
Deletehttp://articles.washingtonpost.com/2008-04-13/opinions/36920874_1_tax-code-tax-scheme-bigger-tax
Stew G
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ReplyDelete