HMRC has formally warned approximately 800,000 of the estimated 1.1 million families that will see changes or cuts to the amount they receive.
Catherine McKinnell, shadow exchequer secretary to the Treasury, said this could mean “a nasty surprise in store for thousands of parents if they are not aware of the changes and have to pay back thousands of pounds in child benefit at the end of the year."
She also criticised George Osborne for failing to “think through this policy or how it will work in practice.”
Despite the criticism of HMRC, Stephen Herring, tax partner at BDO, warned there was a danger of “shooting the messenger.”
He believes George Osborne has set HMRC “quite a tall order especially to get everything in place before the beginning of a tax year.”
“Equally, everyone expected this to be a more complex operation than the government anticipated," he said. "The family unit is not as predictable as it was once, and neither is the job structure. It’s a very uneven pattern, and I wonder if this is going to end up being an area of future investigation for HMRC.
“It would be nearly impossible for HMRC to contact everyone – I’m almost surprised they have contacted the number they have. I have got some sympathy for them trying to apply this policy,” he added.
John Whiting, tax policy director at the Chartered Institute of Taxation, agreed. “HMRC find themselves in a difficult position,” he said. “I would say they’ve made the best of a bad job.
“My advice would be that inevitable Dad’s Army advice: “don’t panic.” This only affects families earning more than £50,000, and the bill will never be more than the benefit was. So the worst case scenario is that someone will have to pay it back, and if you’ve a couple of kids that will be £1,750 over the full year. It’s a hefty bill if you’ve a family, but it’s only what you’ve received in the first place,” he added.
Child benefit will be means-tested from 7 January onwards and will be removed or cut for households where one person earns more than £50,000 per year.
Steve Wade, director of tax and pensions at KPMG, warned that, "Any individuals who are not aware of the changes could be in for a nasty shock. Where the higher earner has adjusted net income of over £50,000 but below £60,000 and the couple claim child benefit for four children the rate of the claw back is such that they will have a marginal tax and NIC rate of over 70%.
"If they haven’t opted out of receiving child benefit, and are not in the self assessment system they will also have to notify HMRC that the higher earner is liable to the Higher Income Child Benefit Charge by 5th October 2013. If they fail to do so a penalty of up to 30% of the child benefit can if charged if the failure isn’t deliberate. If the failure is deliberate and concealed the penalty can be up 100%."
ICAEW has warned that the government’s child benefit proposals are a “political fudge” and are in danger of becoming a “practical disaster.” It outlined its position in May when the institute warned of a series of potential problems arising from the move, including using the tax system to claw back from one individual a benefit paid to another.
Anita Monteith, technical manager of SME & personal tax at the ICAEW Tax Faculty, said, "HMRC was given a very difficult policy to implement. It never said that it would be contacting all those affected for the simple reason that it has no way of identifying them all. The best that could be achieved was to cross match the data held on its different systems and write to those whose circumstances best seemed to fit the rules.
"In terms of the 7 January deadline for opting out, the people who need to take action are child benefit recipients. Many of these, usually the mother, are actually the lower earners in the household, and they will not be liable for the charge. Most of these will not have had a letter from HMRC as they were not the population HMRC was aiming the letters at."
It is estimated more than 300,000 people will have to contact HMRC and complete complex tax returns for the year ending April, or face substantial fines. Those unaware will continue to receive full payment but will have to repay it over the year through tax.
A HMRC spokesman said, "There may be cases where people's circumstances have changed, for example their income may have increased or address may have changed, and we will not yet have up-to-date information. However, to ensure people know about the changes we are also using extensive advertising, media and online activity, as well as written communication.
"Our target audience will have seen the adverts five times on average, and there has been extensive media coverage of the change. Over 1 million hits on the guidance section of the HMRC website and 100,000 uses of our online calculator show that the message is getting through.
"HMRC are committed to ensuring people pay the tax that is due. Using social media to publicise tax criminals - such as Twitter and our Most Wanted list - provides HMRC with an extra tool to reach those who refuse to play by the rules. HMRC has nearly an extra £1bn to tackle tax avoidance and evasion and are adding an additional 200 investigators."