UK Politics

High earners face fines over child benefit declaration

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Media captionDavid Cameron: ''I don't start from the proposition that we're all appalling cheats and liars''

Higher rate taxpayers could be fined if they fail to declare they have a partner receiving child benefit, when cuts are introduced in 2013.

The Treasury has confirmed that "penalties" would be issued in cases of non-disclosure of earnings.

It follows reports that Treasury sources have said a plan to stop child benefit payments to couples with one higher rate taxpayer is unenforceable.

Chief Secretary to the Treasury Danny Alexander said that was "nonsense".

But Labour accused the coalition of "incompetence" and said the policy was "unfair" and had not been "thought through".

But Prime Minister David Cameron said he did nor foresee problems with the policy - and suggested that top rate taxpayers would be honest enough to give up the benefit voluntarily.

"What we said at the time is that if there is a higher rate taxpayer in the family you don't get child benefit," he told a press conference in Brussels, where he is attending an EU summit.

"I don't start from the proposition that we are all appalling cheats and liars and tax evaders, and the rest of it, and I am quite sure this change will secure the very generous revenues that the Office for Budget Responsibility have pencilled in. So I don't predict a problem."

Chancellor George Osborne announced plans to withdraw child benefit - currently paid to all mothers until their child reaches 19, if they choose to claim it - from couples with at least one higher rate taxpayer from 2013, with the aim of saving £2.5bn by 2014-15.

'Completely enforceable'

But there have been questions over how it will be enforced, as mothers are currently under no obligation to declare it.

The Wall Street Journal reported that a Treasury source had said it was unenforceable and elsewhere in government it was felt the policy, due to come into force in 2013, would eventually be dropped.

Asked about the story in the Commons on Thursday, Mr Alexander said: "This is a nonsense story, it is completely enforceable, it will be introduced as planned."

Mr Osborne had already said the intention was to claim the money back through the tax system, by getting higher rate taxpayers to declare whether they or their partner claimed child benefit. He denied it amounted to an "honesty box" - telling the BBC earlier this month: "We will be checking your honesty."

He said the hope was that they would choose not to claim it at all, rather than filling in the form to do so - only to have the money clawed back in tax.

But a Treasury statement issued on Thursday gave further details. It said: "In line with the administration of tax, HMRC [Revenue and Customs] will take action in cases of non-disclosure of information which is relevant to a person's tax affairs. This will include the issuing of penalties."

It added that legislation will be brought forward to implement the change but there are suggestions it could result in a much more complex and intrusive tax and benefit system.

But the Treasury has said the new restrictions would be "be done through existing systems and processes" and no new database or monitoring systems would be needed. Legislation to bring the changes into effect would be set out "in due course".

'Unfair' change

John Whiting, of the Chartered Institute of Taxation, told the BBC: "You have to compare it to the tax credits system where there are lots of forms to fill in, there's lots of checking up - you have really to put a lot of effort in to get it and make sure you are getting the right amount.

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Media captionEd Miliband said the government's policy is a ''complete shambles''

"You are really grafting that onto a system which, until now, has been beautiful in its simplicity."

And Conservative MP, Iain Liddell Grainger, who chairs the All Party Parliamentary Group on taxation, said he had concerns the current taxation system would struggle to cope with the change.

"We can bring it in, there's no doubt. But, will we put the confidence into the citizen that what information is held by the Revenue is right ... can be used and, finally and most importantly, is it going to leave people in a financially worse position if they get it wrong, and lose confidence in the whole system? I think the answer could well be yes."

The policy has proved controversial. It means a couple with one higher rate taxpayer - currently paid a salary of more than about £44,000 but due to fall closer to £42,000 by 2013 - would lose the benefit but a couple with two basic rate taxpayers collectively earning about £80,000 a year would keep it.

Some Conservative MPs have raised concerns it will particularly hit couples where one parent stays at home to look after the children.

Shadow chancellor Alan Johnson, for Labour, said the row about the plans was "what you get when you stumble in, incompetently, into interfering with a universal benefit".

He added: "The government has added incompetence to unfairness in their eagerness to cut child benefit.

"We already knew their plan to hit middle earners was unfair, now we're told it is also unenforceable. If they know how they are going to make it work they should tell us what it is, or drop a policy which hits a family on £45,000 but continues to reward a family that earns £85,000."

He said he was writing to Chancellor George Osborne to demand clarification on the plans.

Impact of child benefit cut
Tax rate Annual income Benefit Keep or cut?
1x Lower
£42,475 or less
1x Higher
£42,476 or more
2x Lower

(2 x 42,475)
1x Lower
1x Higher

(42,475 + 42,476)

Note: higher rate tax begins after earning £42,475 (£35,000 + personal allowance of £7,475)

Source: HMRC

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