Child benefit cut plans 'flawed'

Mother and sonGovernment plans to withdraw child benefit from parents earning more than £50,000 are "seriously flawed in principle and in practice", and threaten public confidence in the tax system, the official accountants' body has warned.

Just months before the scheduled introduction of the changes next January, the Institute of Chartered Accountants for England and Wales (ICAEW) urged the Treasury to rethink its plans or risk "an operational and reputational disaster for the Government and HM Revenue and Customs" (HMRC).
Labour branded the policy a "complete mess" and called on Chancellor George Osborne to change course. But the Treasury argued that it was unfair to expect households on £20,000 to pay through their taxes for benefits for those earning £80,000 or £100,000, and insisted HMRC is confident the reform can be delivered effectively.

Under plans set out in Mr Osborne's Budget in March, the benefit - worth more than £1,000 a year for families with one child and almost £2,500 for those with three - is to be withdrawn gradually from households with a parent earning more than £50,000. Parents with an income above £60,000 will lose it altogether.

In a briefing paper, the ICAEW warned that this will breach the principles of confidentiality and individual taxation which underpin the tax system. The organisation also said it will undermine the principle of fairness, as families in similar circumstances will be treated differently.

A household with one working parent earning more than £50,000 will lose out while neighbours with two parents earning £49,000 each will continue to receive the benefit in full. The policy will create additional administrative burdens, creating up to 500,000 new self-assessed taxpayers and possibly leading to lower service standards from HMRC, warned the ICAEW.

Taxpayers could be penalised for failing to provide information about their spouse's income, which may not be available to them, particularly if a relationship has broken down. Confidentiality could be breached if the HMRC shares information about one partner's tax affairs with the other.

A Treasury spokesman said: "Our child benefit reforms are being implemented as simply and fairly as possible. HMRC is confident the changes can be delivered effectively while also protecting taxpayer confidentiality.

"As a result of the announcements made by the Chancellor at the Budget, those earning between £50,000 and £60,000 a year will only lose child benefit on a gradual basis. This removes the cliff-edge effect, meaning an extra 750,000 will still receive all or some money and 90% of families will still get child benefit.

"The simplest way of introducing this taper is through an income tax charge for those earning between £50,000 and £60,000. The alternative would require means-testing of millions of families."
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