Tuesday, 15 May 2012

Child Benefit freeze

Remember: Child Benefit is being cut in two different ways. Everyone who receives it is losing out.

Today plans to take it from high earning families have been condemned by chartered accountants as "seriously flawed in principle and in practice".

This change, due to be implemented from January could end up being a "disaster".

The Chancellor will remove the benefit in part from households with someone earning over £50,000 and entirely if someone brings in over £60,000.

It's a controversial policy. Some say Child Benefit should be simple and universal, others that the rich shouldn't have it, while these accountants say Osborne's plan is too complicated as well as being unfair.

I think people shouldn't forget that there are actually two cuts being imposed: the value of the benefit has been frozen as well. 

The Treasury saves £1.5bn next year from taking Child Benefit from high earners.

And it saves £1.25bn in the same year by freezing the rates for everyone. The freeze has already started.

Anyway, here's an extract from the Institute of Chartered Accountant's (ICAEW's) findings:

As currently set out, the legislation is seriously flawed in principle and in practice. Unless the government withdraws this clause and schedule with a view to tabling a more workable alternative in time for the Bill’s third reading, we believe the new tax charge could be an operational and reputational disaster for the government and HMRC.

  • 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.
  • 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.

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