7 February 2012
Withdrawal of child benefit for higher rate tax payers – problems ahead
At the Conservative Party conference in October 2010, George Osbourne announced plans to withdraw child benefit from higher rate taxpayers. The Treasury confirmed that child benefit payments would be withdrawn from all households containing at least one higher rate taxpayer by 2013. This will save around £1bn a year from the welfare bill. HMRC will implement this policy through the existing PAYE and Self-Assessment structures.
The Prime Minister and the Chancellor have now announced that the Coalition Government policy of withdrawing child benefit from households in which there is a higher rate taxpayer will go ahead, but be made fairer. They were referring, of course, to the cliff edge whereby a household with one earner on (say) £44,000 a year, just above the higher rate threshold for tax, would lose their child benefit, while a household with two earners, each on (say) £42,000 a year, just below the threshold, would keep theirs.
But is it as easy to implement as it is to say? Robin Williamson of the Low Incomes Tax Reform Group (LITRG) thinks not.
“Even if the Government solve the potential unfairness of withdrawing child benefit from a claimant immediately he, she or his or her partner or spouse becomes a higher rate taxpayer, that will still leave a host of administrative problems to resolve. At worst the new policy could spell the end of independent taxation, or become effectively a new tax on marriage”.
“The policy sounded simple enough when first announced at the Conservative Party Conference in 2010. But the implementation will open up all sorts of complexities. There are two main problems apart from the cliff edge: the absence of any definition of ‘household’ in tax law; and the fact that it is impossible to tell who is a higher-rate taxpayer until their income for the whole tax year is known. Underpinning them are the dissimilarities between tax and benefits which have always made the two systems uncomfortable bedfellows”.
You can read the full article Child benefit and tax – uncomfortable bedfellows? on the LITRG website.
You can find further details of the future changes to child benefit in our policy section.
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