We always welcome a Letter to the Editor to share with our readers. This in from David Nove on the proposed changes to Child Benefit. He questions whether the cost of administering the changes will exceed the savings. In his own words. Ed
One of many jobs I did when I worked for the then Inland Revenue was to act as a spokesman for the Department on local radio. The main complaint listeners had was that the Tax System was too complicated. I tried very hard to be sympathetic.
As a Civil Servant I couldn’t make any political comment but I often felt like saying that most of the complications were born out of a desire to be fair to everybody.
New rules attract huge administration costs
I was reminded of this truth when I read that the estimated cost of administering the new rules on Child Benefit for those living in households where at least one person has income in excess of £50,000 per year is £118 million over the next five years.
To recap the original proposal was that as soon as someone became Higher Rate the Benefit would be withdrawn. It was one of those proposals that sounded good within the sound bite of “we are all in this together”. It was if you like an attempt to show that the Government was hitting the better off.
Public opposition
As soon as the idea became public, cries went up to the effect of “it’s not fair”.
The most obvious objection was that two households could have the same amount of income but because one partner either stayed at home to look after children or was receiving a low wage they would lose all the Benefit whereas a couple who were both Basic Rate taxpayers could keep the money.
The second problem was that in successive budgets the Government has lowered the level at which you start to pay Higher Rate Tax. Something had to be done.
Simple solution?
The solution the Government has come up with is to raise the level at which Benefit stops to £50,000 and for a tapering reduction up to just over £60,000.
It all sounds so simple. However this has all the potential of a bureaucratic nightmare.
The point about Child Benefit was always it was easy to administer. Births of children are registered and the Benefit is paid, usually to the mother, end of story.
Give in one hand and take in another
I understand that the new rules will be that the Benefit will continue to be paid to the mother and that HMRC will claw all or part of this from the Higher Rate Taxpayer either through PAYE coding or the self assessment system.
Truly the state gives in one hand and takes in another.
Tax on Family Allowance
When I joined the Revenue, what was then called Family Allowance was taxed. In law this was possible because a Wife’s income was deemed to be part of her Husband’s.
One good thing that Nigel Lawson did as Chancellor was to do away with that nonsense and introduced the principle of assessing people for tax as separate individuals.
The Government’s plans for Child Benefit will blow a hole in that law in that people in I suspect the majority of cases are going to be asked to pay back money that is given to their partner.
Potential for great confusion
The next hurdle to overcome is identifying who is involved. The latest tax return asks whether an individual is married to or co habiting with someone who receives Child Benefit.
Of course claimants for means tested benefits already have to be assessed on the basis of total household income but this is very much a new departure for Income Tax. Remember also that some people who will be asked to pay Child Benefit back may well not be the parents of the children involved.
I am not asking for sympathy for a comparably well off section of society but I hope you begin to understand the administrative consequences of this change.
Assumes constant level of income
There are though other things to put into the mix. Like the administration of means tested benefits, the change presumes a constant level of income. However just as many at the bottom end of the income scale are often in and out of work (on the Island think seasonal employment), so someone may only reach £50,000 plus because of a one off bonus or if he or she is self employed the business has had an exceptional year.
In this age of insecurity at work there is always also the possibility of redundancy or the business folding or illness. It’s not clear how the new rules will cope with these situations.
Married, separated, divorced or co-habiting
In the days when Married Couples received a tax allowance much time and energy was spent on cases involving separation and divorce.
This will also have to go into the mix calculations to which you must now include non married.
Disagreements over dates of separation are not uncommon and as for couples separated but living under the same roof I had rather not go there.
Finally, perish the thought, some people may think “I am not going to declare that I am co-habiting”, so presumably there will need to be some form of compliance set up by HMRC.
Will costs exceed savings?
I hope you realise the amount of work this creates for HMRC. I would suggest that there is a danger that the costs of all this may well exceed the estimate and that the potential for errors is massive.
It is ironic that George Osborne has justified the cut in the top rate of tax that the amount of money it gathered in was insufficient to keep it at the 50% level.
Image: Tax Brackets.org under CC BY 2.0
