Tax chaos as child benefit cuts loom
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.