Tory MP Liddell-Grainger fears benefit tax 'disaster'

Image caption,
The government has announced cuts in child benefits starting from 2013

A Tory MP has warned the effects on the tax system because of the changes to child benefit are a "disaster waiting to happen".

Ian Liddell-Grainger, the Parliamentary All Party Tax Group chairman said the tax authorities would not cope.

If a claimant or their partner earns more than £44,000 a year, the benefit will be lost under the plans.

But if taxpayers will continue claiming the benefit, this will then be clawed back through extra tax.

Some of the people who pay tax through Pay-As-You-Earn (PAYE) will continue claiming the benefit, which will then be reclaimed by HM Revenue & Customs (HMRC) through extra tax from them or their partner.

The government said most families would not be affected by the changes.

Mr Liddell-Grainger said: "It'll be a shambles, it'll collapse. What will happen is parents won't get the money they need. Other parents will get money that they don't need. The thing will fall between two stools.

"Everybody will turn round and blame the HMRC as we have just seen in the last few months and we'll have a complete pig's ear."

Unanswered questions

Chas Roy-Chowdhury, from the Association of Certified Chartered Accountants, said the problems would be compounded because there were too many unanswered questions.

"Clearly, where people aren't sure what they need to do there could be requirements to contact the call centres. Mistakes will have to be ironed out where HMRC has the wrong information.

"Is it going to be based on gross income before things like pension payments? Is it going to include things like benefits in kind, such as company cars or medical benefits? What is it that's going to be taxed? And I think the threshold itself is a bit ambiguous and it's clearly not been thought through properly yet."

Sarah Jackson, chief executive of the charity, Working Families, said it should be fairly simple, involving HMRC changing the tax code for people affected.

"If you're getting child benefit, keep claiming it - it's really important to keep claiming it. Especially if you're a woman who's staying at home to look after your children, your pension in later life depends on your child benefit status. You get pension credits if you're not working and it's really important to keep those going," she advised.

A spokesman for the Treasury said: "Withdrawing child benefit from households with a higher rate taxpayer can be done within the existing PAYE and self-assessment systems... the majority of families will be unaffected by this policy therefore insuring that the most vulnerable households on low incomes will not have their claims interrupted."

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