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Taxpayers 'will be fined' for child benefit breach

Higher rate taxpayers who fail to declare that their partners are claiming child benefit will be fined under planned welfare reforms, it was disclosed today.

Legislation will require those earning more than about £42,000 a year to inform HM Revenue and Customs if anybody in their household is claiming the benefit.

The Treasury said that non-disclosure would be breaking the law and result in "penalties".

There have been claims that the withdrawal of child benefit from households with a higher rate taxpayer is unenforceable.

Claimants - usually mothers - will be expected to stop drawing the money if they or their partners are on 40% tax. The threshold for that will be about £42,000 from next April.

A Treasury spokesman today insisted the change would go ahead from 2013 as announced by Chancellor George Osborne.

"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," he said.

"This will include the issuing of penalties.

"As we said at the time, the Government will bring forward legislation to implement this change in due course."

A senior Tory MP warned earlier that the proposed shake-up would be "virtually unenforceable".

Ian Liddell-Grainger, chairman of the all-party parliamentary group on taxation, said the move would be impractical until HMRC was able to process real-time information.

"One of the big difficulties the Government has got is that the system they have got is not a real-time system and therefore this is going to be virtually unenforceable," he told BBC Radio 4's Today programme.

"Until we go to real time taxation this is going to be a very difficult position."

He added: "If your circumstances change they will not be able to enact it in real time. The ramifications for getting it wrong are enormous for the taxpayers and the citizens of the UK.

"Why is the citizen going to volunteer the information? Because it's not going to be worth their while, there's no guarantee it can be enacted and people want their privacy respected."

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

"The Office for Budget Responsibility has scrutinised all of the assumptions underlying the savings from this measure, including compliance."

Prime Minister David Cameron said he did not foresee any problem with compliance.

"What we said at the time was that it would be a very simple approach which is to say that if there's a higher-rate taxpayer in the family you don't get child benefit," he said when quizzed over the fines policy at a post-EU summit press conference in Brussels.

"Now I don't start from the proposition that we are all appalling cheats and liars and tax evaders and the rest of it and I am quite sure this change will secure the very generous revenues that the Office of Budget Responsibility have pencilled in.

"So I do not predict a problem."

Shadow chancellor Alan Johnson today wrote to Mr Osborne calling for an end to the "significant confusion" surrounding who would be hit by the measure.

Would a single mother have to spend a certain number of nights with a new partner before his tax status meant she lost her right to child benefit, Mr Johnson asked.

"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?" he went on.

There were many other potential anomalies, he suggested, asking whether the cut would affect:

:: A mother of two whose older child becomes a higher-rate taxpayer while living at home;

:: A single mother who moves back in with her parents - one of whom earns above the threshold or with a sister whose husband pays higher rate tax;

:: A daughter whose higher-rate paying mother moved in with her and her husband.

In the latter case, would the grandmother be fined if the daughter continued to claim, he asked.

"I understand that HMT said yesterday that those who did not self-certify themselves as ineligible would be 'fined'. Could you confirm that even in cases where an individual is not certain whether they are eligible to continue receiving child benefit or not, and does so to avoid losing out, that person may still be fined?" he went on.

"We already knew that your plans were unfair. But what has been increasingly clear is that the plans simply haven't been thought through. The result is the significant confusion we are now seeing about what this policy means in practice.

"The public are entitled to some straight answers about who will be affected and how the change will be enforced."

Mr Johnson also pledged that Labour would oppose in Parliament any legislation needed to implement the enforcement regime.