PKF Accountants & business advisers says that some good
could come from cutting state benefits if the cuts are part of a
package that is balanced by changes that make the income tax system
fairer for all.
Responding to the public outcry over the potential unfairness of
the proposed changes to child benefit, the Prime Minister has
suggested that the benefit losses of some families with
stay-at-home parents could be partly offset by allowing the
personal tax allowance to be transferred between spouses.
Sarah Moss, Partner of Private Client Tax Services at PKF,
comments: "The personal allowance of a non-working spouse or
partner cannot currently be transferred to a family's main
breadwinner. For families in this situation who have the capital to
do it, it clearly makes sense to arrange investment assets so that
income is received by the non-working spouse or partner. For
example, business owners might gift shares to a spouse on which
dividends can be paid. But other families where the main earner is
an employee just lose out. The tax system would be much fairer if
the personal allowance could simply be transferred to the working
spouse or partner through their tax code - even if this relaxation
only gave the transferee tax relief at basic rate, to keep down the
cost to the Treasury."
The Government's initial child benefit proposals only included
partial means testing: if either parent has annual income in excess
of £44,000 the benefit would be lost but, if both parents
have an income of £43,000, the full benefit is to be
available. Critics have pointed out that this will disadvantage
families where the parents have unequal income and calls for fairer
means testing rules have already begun.
Sarah Moss said "This seems to be just the start of a long
process. I would not be too surprised if the Government eventually
gives in to public pressure for 'fairness' by moving child benefit
to full means testing. HMRC already administers the means tested
tax credits system so applying this to child benefit may be
possible by 2013. It is not entirely unthinkable that the two may
in this timescale be fully integrated. But if we end up with HMRC
being used as the clearing house to calculate and pay out all means
tested state benefits, there are bound to be practical problems -
we all know HMRC's record when it comes to IT systems.
"The cuts to child benefit may initially have been sold as a way
to reduce the Government deficit, but if all they actually deliver
is savings to fund a system of transferrable personal allowances
for families, at least that would produce a fairer tax system."
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