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Experts highlight ‘serious flaws’ in child benefit changes

Government plans to reduce child benefit for families where an individual earns more than £50,000 have come under fire from a leading accountancy body.

Child benefit is currently paid to all families with children under 16 years of age (or in some cases up to 20 years of age), at a rate of £20.30 a week for the first child, and £13.40 a week for any subsequent children.

However, the Government has stated that those on low incomes should not be subsidising those on higher incomes, and plans to reduce the benefit for higher earners were confirmed in the 2012 Budget.

The changes mean that from January 2013 the benefit will be gradually withdrawn where one parent’s income exceeds £50,000, being eroded entirely where income reaches £60,000 or more.

At this point an individual will either need to stop claiming child benefit, or alternatively declare receipt of the benefit in a self assessment tax return, in which case HM Revenue & Customs will tax them by an equivalent amount.

The Institute of Chartered Accountants in England and Wales (ICAEW) has warned that the measures undermine the principle of individual taxation, by making it necessary to claw back from one person a benefit that is paid to another person, and by expecting couples to disclose to each other their level of income and whether they are claiming the benefit.

Critics have also highlighted the fact that the move goes against the principle of a universal child benefit, which is paid to all families regardless of circumstance.

A further loophole was highlighted in the run-up to the Budget, with experts warning that while a single parent earning £50,000 or more would lose the benefit, a family with two parents who each earn just under £50,000 would retain it.

The ICAEW has written to MPs and the Treasury, outlining the problems that it perceives to be inherent in the plans.