Concerns child benefit reforms will cause complications

Changes to the child benefit system announced in the Budget will cause a 'high degree of complexity' in take up and HMRC administration, says the Chartered Institute of Taxation (CIOT).

Child benefit is to be gradually withdrawn from households containing individuals earning more than £50,000 from 7 January 2013. A new income tax charge of 1 per cent of the amount of child benefit for every £100 of income above £50,000 will be applied. Child benefit will be removed completely for those earning over £60,000.

John Whiting, tax and policy director of the CIOT, welcomed the tapered withdrawal that is to replace the current 'cliff edge' problem where a single earner taking home more than £42,475 immediately loses their child benefit. However, he said that complexities remain.

"For example, 'partners' are defined as a married or unmarried couple, or civil partners or two people living together as if they were civil partners of one another. The concept of people living together as if they were married, or civil partners, is new to tax law. So where a household is formed, or breaks up, over a period of time, how does one define the exact point at which the household begins, or ceases, to exist?"
"This implies an increase in HMRC's compliance activity into the nature of relationships," he added.

According to the Guardian, the reforms will amount to an additional 500,000 self-assessment tax forms being filled in by households, adding pressure to HMRC who will assess and process them.

Delivering the Budget, Chancellor George Osborne said the decision to remove the child benefit from higher rate tax payers was 'difficult' and that it could not be reasonably justified why a lower earner should pay for benefits to those earning £80,000 or more.

"I wish to do this in a way that is fair and that does not involve setting up some new means-tested tax credit system for millions of families," he said.