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Odd Child Benefit cut decision
I’d assumed that the cut would be linked to CTC (while that exists); that would avoid annualisation or weekly assessment and allow periods of low earnings to have CB while higher earnings wouldn’t.
According to the BBC they’re not doing that.
“Any couples where one parent earns about £44,000 - roughly the 40% tax level - and above will be affected.
....
Mr Osborne said: “It’s very hard to justify taxing people on much lower incomes in order to pay the child benefit to some of the better off in our society.”
He confirmed the cut would hit homes with a single or two high earners but families with two parents on incomes up to £44,000 - which might add up together to over £80,000 - would keep the benefit.
The chancellor defended this by saying his plan was “the most straightforward” option - which would avoid across the board means testing.”
Does this mean that CB will be paid on the basis of last years income, linked to PAYE or what? All the problems with self-employed, emergency codes, seasonal earnings etc. seem to imply that this might not be part of the new ‘simpler’ benefits system.
ps. According to the Telegraph
“The system relies on higher rate taxpayers declaring whether anyone in their household is claiming the benefit which can then be deducted from their earnings.” - Boggle!
[ Edited: 4 Oct 2010 at 11:51 am by Gareth Morgan ]On the radio this morning George Osborne was talking about it being done through retrospectively recovering an ammount equivalent to the child benefit paid from those who fall into the high tax band. There will be a box on the self assessment form to tick if you or your partner has been getting CB in the past year so they can pick them up but I didn’t catch how it would work with PAYE. The expectation seems to be that most high rate tax payers will not bother claiming since they can expect it to be recovered. I had thought they would go along the lines of merging CB with CTC as that seemed much simpler to me. This may seem simple on the face of it but there are potentially a lot of LTAHAW issues which could arise and it is not clear how couples who are only together for part of the year would be affected.
Well they could avoid the LT issue by only looking at the person getting CB but that doesn’t seem to be the plan.
AFAIAA the tax system doesn’t link couples any more anyway so fraud is a going to be a real opportunity.
What happens to the person who was a high earner then stops at the end of the tax year, becoming dependent on benefits, but declares the previous situation?
By way of some quick sums, using current tax rates and CB rates for consistency:
With 1 child, the gross loss will take £1,759.33 per year to recover to the same net income at the starting point for high rate tax.
For 2 children it will be £2,920.67
For 3 children it will be £3,822.00
Assuming that this is, as presented, a simple immediate cut-off, that produces a substantial poverty trap effect.
Of course, if you’re self employed and choose to be paid less but to borrow money from your business with no intention to ever repay it…..
Presumably the proposal will also mean the introduction of living together rules for Child Benefit and interesting scenarios when couples involving one higher rate tax payer separate and then reconcile. Oh what joy…
It also flies in the face of the alleged commitment to simplify the benefits system, but then every government since the 1960s has proclaimed a simplification and left office with it being even more complicated. This one is going to be no different.
they’re calling it a ‘withdrawal’ of child benefit, through the tax system ...
‘The withdrawal of Child Benefit from higher rate taxpayers - saving an estimated £1 billion a year -will also apply from 2013, administered through the tax system. There are currently 1.2 million households where higher rate tax is applied which qualify for child benefit. The 6.6 million families with no higher rate taxpayers who receive the benefit will remain unaffected by the change.’
Can I correct my previous sum, I clearly need more fingers.
With 1 child, the gross loss will take £1,759.33 per year to recover to the same net income at the starting point for high rate tax.
For 2 children it will be £2,920.67
For 3 children it will be £4,082.00
How sad a multi millionaire who does not need to work will still get Child Benefit but someone working and struggling to make ends meet gets it withdrawn?