Couples face child benefit quiz under new tax

 
Parents and two children Some couples may not be happy to swap tax and benefit details

New child benefit rules mean that some high earners and their partners will be expected to disclose their finances to each other from next January.

People will also be able to find out from HM Revenue and Customs if their partners receive child benefit, or earn above £50,000 a year.

The changes are part of the forthcoming taxation of child benefit in households where someone earns above £50,000.

Experts say the changes will breach key tax confidentiality principles.

"This is a chip away at independent taxation and taxpayer confidentiality, because there is no other way of going about it," said John Whiting, of the Chartered Institute of Taxation (CIOT).

Chas Roy-Chowdhury of the ACCA accountancy body said: "I think the Treasury have devised a bad tax that HMRC are having to implement.

"It is a bad idea to tax an individual who is not receiving the benefit."

Checking each other

The new tax starts on 7 January 2013 and will affect 1.2 million families.

It is going to be levied on those in a household whose "adjusted net income" is more than £50,000 a year and who claim, or whose partner claims, child benefit.

Child benefit facts

  • Child benefit is a tax-free payment that is aimed at helping parents cope with the cost of bringing up children
  • One parent can claim £20.30 a week for an eldest or only child and £13.40 a week for each of their other children
  • The payments apply to all children aged under 16 and in some cases until they are 20 years old
  • The system is administered by HM Revenue and Customs (HMRC) which pays out to nearly 7.9 million families, with 13.7 million children

HMRC says it will "expect" couples to discuss their tax and benefits with each other, to find out if the higher earner is liable for the tax, despite the policy of separate taxation of married couples being in place since 1991.

HMRC will also let taxpayers ask for rudimentary information from its records to see whether or not their partners receive child benefit, or have an "adjusted net income" above £50,000, and should be paying the new tax.

This runs counter to the general principle of taxpayer confidentiality, which has been a formal part of the income tax system since 1803.

Revealing someone's tax records is currently a criminal offence for HMRC officials.

The relaxation of the two principles is going to happen because otherwise high earners who should pay the tax would be able to claim they were unable to find out if their partner received child benefit, and vice versa.

"In stable relationships you can see this carrying along smoothly," John Whiting said.

"But what about relationships that break up during the year?

"There are so many practical questions [about how the new tax will operate]," he added.

'Best of a bad job'

Responsibility for paying the tax will lie with the high earner in the household.

Start Quote

HMRC would expect couples to discuss their tax or benefit details with each other”

End Quote HMRC

HMRC also administers the child benefit system, which pays out to nearly 7.9 million families, with 13.7 million children.

So the Revenue could cross-check its list of high earners with its list of child benefit recipients, to see where they coincide.

But it hopes that taxpayers who have to pay the tax will save it the trouble and identify themselves when they are sent forms, as part of an enlarged self-assessment tax system next year.

An HMRC spokeswoman explained how the Revenue expected the new arrangements to work.

"HMRC would expect couples to discuss their tax or benefit details with each other," she said.

"However, for taxpayers unable to discuss their financial affairs, we will develop a process with appropriate security checks so HMRC can provide 'yes/no' answers to simple questions about whether child benefit is paid to the taxpayer's partner or about the level of a partner's income," she added.

Despite the implications of the emerging policy, HMRC said: "We are committed to protecting the principle of individual taxation and confidentiality. These principles will be at the centre of our child benefit compliance procedures."

Chas Roy-Chowdhury said: "It is making the best of a bad job.

"The person paying has to comply with the system so there has to be a way they can get the information."

£700m saving

Currently, a parent can claim £20.20 a week in child benefit for their eldest or only child, and £13.40 for each subsequent child.

The money is not taxed and the system is geared towards paying the mother.

The payments apply to all children aged under 16 and in some cases until they are 20 years old.

The policy of withholding child benefit from families where there is a high earner was first suggested by the coalition government in 2010.

In this year's Budget the plan was refined so that it would not apply, as first suggested, to all those who pay 40% income tax on any of their incomes.

Instead, the tax will apply gradually at £50,000 of income, with the child benefit being eroded completely once someone's income is £60,000 or more.

It is expected to save the government nearly £700m a year.

If the high earner is also the person claiming child benefit for their children then they can simply stop claiming it in order to avoid the tax charge.

But if a parent with a high-earning partner claims the benefit, their partner will have no power to tell them to stop claiming it so the new charge can be avoided.

Penalties

The government estimates that 1.2 million families receiving child benefit will have to pay the new tax; 70% will lose all their benefit and the remaining 30% will lose just a portion.

The affected families are expected to lose £1,300 a year on average.

The Revenue said that if it suspected that individuals were not paying the new tax charge when they should, it would be able to cross-check its income tax records with its child benefits records.

"HMRC will apply existing risk assessment techniques to identify where, for example, income has been understated or the liability has not been reported," said the Revenue spokeswoman.

"Existing penalties will apply to non-compliant taxpayers," she pointed out.

That means fines or possible prosecution.

 

Comments

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  • rate this
    0

    Comment number 246.

    As a father of 4 children for which my wife and I can claim child benefit I am beginning to see the virtues of scrapping it! (Even though it would hurt financially).

    The UK is quite unusual in providing CB and therefore it's time we caught up with the rest of the world....

  • rate this
    +2

    Comment number 245.

    I find it utterly bizarre that people honestly believe that there should be compulsary birth control in this day and age! Surely it would be far easier to bring back the eugenics movement :rolls eyes: Surely it is not low income families you should be worried it about but couples unable to discuss their finances!

  • rate this
    -2

    Comment number 244.

    I suggest that marriage classes should be compulsory and to explain the responsibilities & expectations and that a binding contract should be drawn up that both parties sign and stipulating that everything must be divulged not hidden.

    I bet a lot of showy posh weddings would be cancelled if they had to do that & the child benefit bill drastically reduced.

  • rate this
    +3

    Comment number 243.

    Yet another argument for scrapping expensive child benefit altogther and lowering the tax take.

    Gains will be made by less bureaucracy

  • rate this
    +3

    Comment number 242.

    Chas Roy-Chowdhury of the ACCA accountancy body said: "It is a bad idea to tax an individual who is not receiving the benefit."

    My God, paying tax without receiving any benefit - whatever will they think of next? Perhaps they'll start talking about "hard working single people" where 100% of the household pays tax instead of "hard working families" where 25% of the household pays tax!

  • rate this
    -21

    Comment number 241.

    If as many here are suggesting Child benefit is scrapped because if you chose to have kids you pay, then by the same argument we should also scrap pensions, you chose to get old you should pay, the argument that you have paid for it, well it is obvious by the counties finances that it wasn't enough, but as a compromise maybe you should get 10 years and then fend for yourself it you want to go on

  • rate this
    0

    Comment number 240.

    Is the quiz anything like the one on the Gadget show? Tokyo is the capital city of which country? - London, Paris, Japan... after winning all those gadgets, they might not need so much of our tax money - which would be nice.

  • rate this
    -2

    Comment number 239.

    228.Bibi

    This comment is wrong; Ed Milliband has argued vociferously for the retention of the universality of this benefit which the right wanted to limit to the needy. Are you living in a parallel universe?

  • rate this
    +5

    Comment number 238.

    @224
    Not quite correct. It was a family allowance initially and there was nothing for the first child. The more generous child benefit was introduced not long after I got married in the 70s to coincide with the abolition of child tax allowance. Family allowance was treated as taxable income by the way.Maybe it should be tapered away, the more kids you have, the less you get.

  • rate this
    0

    Comment number 237.

    I disagree with the opinion that if you can't afford them then don't have them. Without children who will pay taxes to support us all in old age? I have two children and the benefit paid is not wasted on luxuries but is used to meet in part the cost of school uniforms, school activities and breakfast / after school clubs so that my wife and I can work full time to support them further.

  • rate this
    +3

    Comment number 236.

    Couples should be dealt with as a single entity when it comes to tax and benefits and benefits should only be paid for a maximum of two children.

    If couples cannot trust each other on financial matters then the whole relationship must be suspect.

    What a sad country this has really become.

  • rate this
    +3

    Comment number 235.

    1. People should not have children they cannot afford.
    2. No government money should be given to anyone without strict means-testing, including child benefit.
    3. Childless people should get tax relief because of the reduced costs and benefits they bring to society.

  • rate this
    +1

    Comment number 234.

    Fact of the matter is if you setup a limited company for £100 and employ yourself through that using minimum wage and dividends to pay yourself you will be outside this issue thus continue to receive the money

    All MP's have limited companiesfor which they are employed through!

  • rate this
    +1

    Comment number 233.

    217 This is a reason why the system is archaic and frankly irrelevant.. Wives?? sorry but Wives??

  • rate this
    +5

    Comment number 232.

    There seem to be an awful lot of people on here in favour of forced abortions for the poor.

    What a nasty little world we live in sometimes.

  • rate this
    +1

    Comment number 231.

    Whole point of Child Benefit was that it was universal and therefore admin free. Another great example of the Coalition losing the plot, shooting themselves in the foot once again and introducing a completely self-defeating budgetry measure supposedly to save money - don't make me laugh when are they going to start getting it!

  • rate this
    -1

    Comment number 230.

    Child Benefit is a sore subject with a member of my family right now. She and her partner divorced a couple of years ago and he is a self-employed builder who earns in excess of £50k p.a but because most of this is paid in the form of a dividend at the end of each year, the Courts said he is only required to pay £20 per month maintenance but she struggles to get even this out of him.

  • rate this
    +12

    Comment number 229.

    While living and working in Germany our family (with 2 children) was in receipt of Kindergeld (Germany state Child Benefit) This is a Universal benefit and not dependant on the families income. The amount paid per child was circa £150 per month. This compares to the UK Child Benefit of £81.20 per month.

  • rate this
    +3

    Comment number 228.

    This debate is about the payments from the state to people who by no stretch of the imagination could ever be described as impoverished. But the anger of the right is aimed not at the people with plenty still qualifying for and leeching public money, but at the poorest in our society. Quite unbelievable. From such nonsense Facist states are built.

  • rate this
    -5

    Comment number 227.

    I don't endorse the single mum housing culture but if you have no prospects what are the options?Many younger working couples are struggling to pay their inflated rents let alone buy an overpriced underbuilt cardboard box.

    Short of statutory birth control I don't see what can be done.

 

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