Higher rate taxpayers could face child benefit fine

In a bid to enforce the welfare cut the Treasury will send out “penalties” for anyone failing to disclose earnings.

As part of the government’s spending review announced by Chancellor George Osborne, child benefits are due to be cut if at least one parent earns over £44,000. According to reports a senior Treasury source has warned the cut could be “unenforceable“.

Ian Liddell-Grainger, chairman of the all-party parliamentary group on taxation, said the move to withdraw the benefit from couples where one earner pays higher rate tax would not be practical until HM Revenue and Customs was able to process real-time information.

Experts have questioned the cut, saying that usually taxation looks at individuals rather than couples. In many families the father is the higher earner while the mother receives the benefit.

Shadow Chancellor Alan Johnson has written to the government asking it to clarify how HMRC will work out who must pay back the benefit and highlighted other ‘wrinkles’ in the plan. He pointed out it’s not just a partner who could be a higher rate tax payer.

Mr Johnson said: “Would a single mother lose her child benefit for her younger child if an older child who lives in the same home became a higher rate taxpayer?”

He also questioned how the government would identify a man and woman as being in a household: “If a single mother meets a new partner who is a higher rate taxpayer – how many nights would they need to spend together for her to be disqualified from child benefit? Would she have to keep a record of the number of nights she stayed with him? Would the answer vary if the nights were spent in her property or his?”

Four million higher rate taxpayers will receive a government letter asking them to declare their earnings, the Treasury has confirmed. Those who do not comply – be either failing to respond to by lying – could face a fine.

There are also reports that revenue and customs are working on a system of retrospectively “fining” higher rate taxpayers who failed to disclose their true child benefit situation by changing their tax code.

The withdrawal of child benefit for higher rate taxpayers will be enforceable and will go ahead in 2013. Treasury

‘Nonsense’

Ministers have dismissed as “nonsense” reports that even the Treasury feared the proposal was unworkable because it relied on partners or spouses being forced to declare each other’s earnings.

“This is nonsense, the withdrawal of child benefit for higher rate taxpayers will be enforceable and will go ahead in 2013,” a Treasury spokesman said.

“In line with the administration of tax, HMRC 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.”

The Government’s welfare shake-up was also at the centre of a continuing row over plans to cap housing benefit, after London Mayor Boris Johnson vowed not to accept “Kosovo-style social cleansing” in the capital.

He later said his comments had been taken out of context, but they earned a rebuke from No 10 and senior Liberal democrats including Deputy Prime Minister Nick Clegg.

Housing benefit row

Housing associations have warned the planned cut to social housing will increase overall welfare bills.

The National Housing Federation said that if rents for new tenants in the social housing sector are to be increased to around 80 per cent of the amount people would be charged in the private sector, then tenants will have a “powerful disincentive” to work.

Government plans to bring social housing rents closer to private sector ones will leave thousands of social home tenants “trapped” on benefits, the federation said.