Thousands face confusion as families are told of child benefit cut

http://www.guardian.co.uk/society/2012/oct/28/child-benefit-cuts-letter

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Tens of thousands of families are expected to seek professional advice on how to avoid losing their child benefit as dreaded letters from the taxman about looming cuts arrive on doormats this week.

HM Revenue & Customs will send letters to about a million households from Monday explaining how better-off families will lose child benefit from January in a move that is expected to cause a huge public backlash and a wave of confusion.

Accountancy firms and tax experts believe that the plans – part of the government's attempts to slash the benefits bill – will lead to a rush of calls from people who are determined to get round the rules or are simply baffled by the change.

Families in which one parent earns more than £60,000 a year will lose all their benefit, which is currently £20.30 a week for the first child and £13.40 for each child after that. Families where one parent earns between £50,000 and £60,000 will have the benefit reduced on a sliding scale.

But as Tory MPs call for a delay – warning that the move will anger traditional supporters – accountants say they expect to hear from people who have never used their services before.

Karen Clark, head of personal tax at accountant Baker Tilly, said that most people earning £50,000 to £60,000 would not normally think of using an accountant. "But when people realise what is about to happen, I think they will think differently."

Clark said there were several ways in which people might be able to avoid losing the benefit, such as making additional pension contributions or opting for a "salary sacrifice" agreement, under which they would take more holiday and less pay.

She added: "Someone earning £49,000 who is offered a pay rise could say: 'No, don't give me cash. I would like to have more holiday or make a larger pension contribution." Clark said the government could spend so much time number-crunching that the costs could be far more than expected.

HM Revenue & Customs will write to people with incomes over £50,000 who live at an address where child benefit is received to explain how their family is likely to be affected.

The Institute of Chartered Accountants in England and Wales has warned that most families remain oblivious to the change and confusion could break out when the letters arrive. It is estimated that 500,000 people will have to fill out complicated self-assessment tax returns for the first time.

Tax expert John Whiting said: "People are beginning to think quite hard as to whether they manage their income – can they move income between couples, for example?" He said ending the payments for higher earners, worth more than £1,750 a year for a family with two children, will inevitably be tricky for the government, because income tax is assessed on an individual basis, while benefits are usually awarded on the basis of the total household income.

"They could have done it more simply, by scrapping child benefit and combining it with tax credits [which are paid on the basis of household income] instead. Having decided to do it this way you're always going to end up with complications: there's always going to be an edge point." He warned that because of these complexities, HMRC may have underestimated the administrative cost of withdrawing the benefit from higher-earning couples. "You've got to get the information out there; you've got to staff helplines and pick up a lot of people."