The chancellor's plans to end the universal right to child benefit for all families and introduce means tested benefits is a 'disaster waiting to happen', say accountants.
The Institute of Chartered Accountants in England and Wales (ICAEW) has told the Treasury that proposed changes to strip benefits from families where an individual earns more than £60,000, and reduce it where someone earns over £50,000, is a ‘policy disaster in the making.’
Under plans announced in the budget in March, households where an individual earns more than £50,000 will have their child benefit gradually reduced, and families where one parent starts to earn more than £60,000 will lose all of their benefit.
Frank Haskew, head of tax at the institute, warned that the new system, which is due to come into effect in January 2013, will be hard to deliver operationally as it involves combining the benefits system, which is based on households, and the tax system, which is based on individuals.
He went on to say that a benefit paid by the Department for Work and Pensions in one year to one individual, could potentially have to be clawed back by HMRC from another in the next year. There could also be problems if partners do not share financial information, or when relationships break down.
The institute, which represents 16,000 chartered accountants, expressed concern that the clawback could lead to very high marginal tax rates for larger families in the £50-60k income bracket.
They also warned that there might be problems for the partner who claims child benefit – usually the mothers – because claiming child benefit for a child under 12 contributes to the state pension entitlement of the person claiming it.
Mr Haskew said, ‘We understand the policy purpose behind the Government’s proposals, particularly given the tough situation with public finances. While we appreciate that the clawback will not start until around double the national average wage (£26k), we do not believe that HMRC’s systems will be ready to deal with this, or deal with the fallout when problems start to emerge.’
He added, ‘We think there are workable solutions, including extending means testing – and ICAEW want to continue to work with tax authorities and the treasury to identify them.’
Under plans announced in the budget in March, households where an individual earns more than £50,000 will have their child benefit gradually reduced, and families where one parent starts to earn more than £60,000 will lose all of their benefit.
Frank Haskew, head of tax at the institute, warned that the new system, which is due to come into effect in January 2013, will be hard to deliver operationally as it involves combining the benefits system, which is based on households, and the tax system, which is based on individuals.
He went on to say that a benefit paid by the Department for Work and Pensions in one year to one individual, could potentially have to be clawed back by HMRC from another in the next year. There could also be problems if partners do not share financial information, or when relationships break down.
The institute, which represents 16,000 chartered accountants, expressed concern that the clawback could lead to very high marginal tax rates for larger families in the £50-60k income bracket.
They also warned that there might be problems for the partner who claims child benefit – usually the mothers – because claiming child benefit for a child under 12 contributes to the state pension entitlement of the person claiming it.
Mr Haskew said, ‘We understand the policy purpose behind the Government’s proposals, particularly given the tough situation with public finances. While we appreciate that the clawback will not start until around double the national average wage (£26k), we do not believe that HMRC’s systems will be ready to deal with this, or deal with the fallout when problems start to emerge.’
He added, ‘We think there are workable solutions, including extending means testing – and ICAEW want to continue to work with tax authorities and the treasury to identify them.’
