Tax chaos as child ben­e­fit cuts loom

The Daily Telegraph - - Front Page - By Robert Winnett, Po­lit­i­cal Ed­i­tor

AL­MOST a third of fam­i­lies af­fected by Ge­orge Os­borne’s raid on child ben­e­fit have not been for­mally warned that they will no longer be el­i­gi­ble for the handout, which will be means-tested from next Mon­day.

As a re­sult, more than 300,000 peo­ple will have to come for­ward and be­gin com­plet­ing com­plex tax re­turns for the year end­ing this April — or face fines run­ning into hun­dreds of pounds a year.

HM Rev­enue and Cus­toms has in­formed 784,000 fam­i­lies that they must ei­ther stop claim­ing child ben­e­fit by this week­end or pay a new tax to cover the cost of the pay­ments.

More than 160,000 peo­ple have al­ready opted not to re­ceive pay­outs. How­ever, the Government ad­mits that more than 1.1 mil­lion fam­i­lies will be af­fected by the change, mean­ing that at least an­other 316,000 have not yet been con­tacted by the tax au­thor­i­ties.

They have so far been de­nied the choice of opt­ing out of the new sys­tem by not claim­ing child ben­e­fit. Many may be un­aware that they are af­fected.

The de­fault po­si­tion for th­ese peo­ple is that they will con­tinue to re­ceive the money and will have to re­pay it in tax. The money is paid to moth­ers but re­claimed through tax pay­ments made by any­one earn­ing more than £50,000 in a house­hold.

They will have to fill in self-as­sess­ment forms, a sys­tem that was in­tro­duced in 1996 for the self-em­ployed and for those with more com­pli­cated tax af­fairs.

About eight mil­lion peo­ple now have to fill in the forms, but many re­gard the process as too dif­fi­cult and are fined for re­turn­ing their as­sess­ments late.

The dis­clo­sure that HMRC has failed to trace and con­tact about a third of those hit by the con­tro­ver­sial changes will add to grow­ing fears that the com­pli­cated new sys­tem will con­fuse tax­pay­ers and pe­nalise hun­dreds of thou­sands of fam­i­lies. Min­is­ters have di­verted more than 400 staff within HMRC to po­lice the new sys­tem and re­cover the child ben­e­fit pay­ments from higher earn­ers.

The Chan­cel­lor ini­tially an­nounced that any house­hold with a higher-rate tax­payer would lose child ben­e­fit, which is worth £1,055 an­nu­ally for the el­dest child and £696 for other chil­dren, from Jan­uary 2013.

How­ever, fol­low­ing protests, a more com­pli­cated pro­posal was drawn up — with only those house­holds earn­ing more than £60,000 los­ing the ben­e­fit in full. Those earn­ing be­tween £50,000 and £60,000 will re­ceive a re­duced ben­e­fit.

Peo­ple should have been in­formed that they had the choice of not claim­ing the ben­e­fit or con­tin­u­ing to re­ceive the money and then paying a “high in­come child ben­e­fit charge”.

Over the past nine months, HMRC has at­tempted to draw up a list of house­holds recorded as claim­ing child ben­e­fit and con­tain­ing at least one earner re­ceiv­ing more than £50,000.

How­ever, there are con­cerns that the sys­tem is far from com­plete af­ter it emerged that hun­dreds of thou­sands of peo­ple have not been con­tacted.

Mike War­bur­ton of Grant Thorn­ton, the ac­coun­tants, said: “We un­der­stood that ev­ery­one af­fected would re­ceive a let­ter and it is a con­cern that peo­ple have not re­ceived the in­for­ma­tion. Many peo­ple are un­aware that they will now have to com­plete self-as­sess­ment forms. It is dis­ap­point­ing.”

Barry Murphy, a tax part­ner at PwC, the ac­coun­tants, added: “The tax sys­tem seems to have grown to be overly com­plex. Un­til ma­jor re­form oc­curs, we will have changes like this which will be com­plex and catch peo­ple un­awares.”

Mr Os­borne says the raid on child

ben­e­fit is nec­es­sary to demon­strate that wealth­ier fam­i­lies are con­tribut­ing to the Government’s aus­ter­ity pro­gramme, but there have been warn­ings that the com­plex­ity would prove to be an “op­er­a­tional and rep­u­ta­tional dis­as­ter”.

The In­sti­tute of Char­tered Ac­coun­tants for Eng­land and Wales sent a report to the Trea­sury de­scrib­ing the leg­is­la­tion as “se­ri­ously flawed in prin­ci­ple and in prac­tice”.

John Whit­ing, of the government’s Of­fice of Tax Sim­pli­fi­ca­tion, said the “sheer amount of ex­tra ad­min­is­tra­tion and check­ing that the process will bring in must not be un­der­es­ti­mated”.

Most house­holds with some­one earn­ing more than £60,000 would be ad­vised to sim­ply opt out of the sys­tem to avoid the prob­lem of fill­ing in a self-as­sess­ment form. Those con­tin­u­ing to re­ceive the ben­e­fit have to fill in the full tax re­turn, which runs to at least eight pages.

They could be fined un­less they volun- tar­ily come for­ward by Oc­to­ber and reg­is­ter for self-as­sess­ment.

Min­is­ters ex­pect to save £1.5bil­lion an­nu­ally through the new sys­tem. HMRC de­fended the sys­tem yes­ter­day and said of­fi­cial let­ters were only one way of in­form­ing those af­fected.

“HMRC have writ­ten to 800,000 peo­ple about the child ben­e­fit changes,” said a spokesman. “There may be cases where peo­ple’s cir­cum­stances have changed, for ex­am­ple their in­come may have in­creased or ad­dress may have changed, and we will not yet have up-to-date in­for­ma­tion. How­ever, to en­sure peo­ple know about the changes we are also us­ing ex­ten­sive ad­ver­tis­ing, me­dia and on­line ac­tiv­ity, as well as writ­ten com­mu­ni­ca­tion.

“Our tar­get au­di­ence will have seen the ad­verts five times on av­er­age and there has been ex­ten­sive me­dia cov­er­age.”

Cather­ine McKin­nell, a shadow Trea­sury min­is­ter, ac­cused Mr Os­borne of hav­ing failed to think through the pol­icy. “There could be a nasty sur­prise in store for thou­sands of par­ents if they are not aware of the changes and have to pay back thou­sands of pounds in child ben­e­fit at the end of the year,” she said.

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