Child benefit cutbacks undermine entire tax system, warn accountants

GOVERNMENT plans to take away child benefit from families where one earner has a salary of £50,000 or more could be illegal and undermine confidence in the tax system, a respected accountancy body has warned.

The Institute of Chartered Accountants for England and Wales (ICAEW) urged the Treasury to rethink the changes, which come in next January, or risk “an operational and reputational disaster for the government and HM Revenue and Customs”.

Its sister body in Scotland, ICAS, said the move could also contravene EU rules on tax confidentiality.

The criticism is a further blow to the government’s attempts to make billions of pounds of savings through reforming child benefit.

Originally, Chancellor George Osborne had wanted to withdraw the benefit completely from families with a higher tax earner, but retreated following claims that it was an attack on stay-at-home mothers.

Labour branded the policy a “complete mess” and called on Mr Osborne to change course.

But the Treasury argued it was unfair to expect households on £20,000 to pay through their taxes for benefits for those earning £80,000 or £100,000, and insisted HMRC could deliver on the plan.

However, the move also came under fire from Tory MPs who said it undermined the “traditional” family.

Under the new plans set out in Mr Osborne’s Budget in March, the benefit – worth just over £1,000 a year for families with one child and almost £2,500 for those with three – is to be withdrawn gradually from households with a parent earning more than £50,000. Parents with an income above £60,000 will lose it altogether.

But in a briefing paper published yesterday, the ICAEW warned this would breach the principles of confidentiality and individual taxation which underpin the British tax system.

The organisation said it will undermine the principle of fairness, as families in similar circumstances will be treated differently. A household with one working parent earning more than £50,000 will lose out while neighbours with two parents earning £49,000 each will continue to get the benefit in full.

The policy will create additional administrative burdens, creating up to 500,000 new self-assessed taxpayers and possibly lowering service standards from HMRC, warned the ICAEW.

Taxpayers could be penalised for failing to provide information about their spouse’s income, which may not be available to them, particularly if a relationship has broken down. And confidentiality could be breached if the HMRC shares information about one partner’s tax affairs with the other.

“HMRC will be using the tax system to claw back from one individual a benefit paid to another,” said the ICAEW.

“The tax system is based on individuals, while the benefits system is based on households. This undermines the principle of individual taxation.”

A Treasury spokesman said: “Our reforms are being implemented as simply and fairly as possible. HMRC is confident the changes can be delivered effectively, while also protecting taxpayer confidentiality.”