The Benefit System

Child benefit proposals are "political disaster"

Child benefit proposals are "political disaster"

Frank Haskew, the head of the ICAEW Tax Faculty, has warned that the Coalition Government’s child benefit proposals are highly flawed and will be a “practical disaster” when they are introduced. 

Mr Haskew argues that HMRC do not have the necessary systems in place to run the proposals.

He argues that the flaw in the system lies in that the UK tax system is based on individual income not family.  Mr Haskew argues that “it will be hard to deliver operationally”.  

He further stated  that:

“In some cases, partners may elect not to receive the benefit and thereby avoid any claw-back.  But there might potentially be problems for the partner who claims child benefit because it can contribute to the state pension entitlement of the person claiming it”.

The core problems identified are that:

  • 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.
  • Taxpayers could be penalised for failing to submit information they have no access to, particularly if the relationship breaks down.
  • 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 are taxed under self-assessment, they probably won’t know their adjusted net income in time to meet the October deadline.
  • 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 because 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.

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