Child benefit cuts: a massive boost to the tax avoidance industry

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The cut George Osborne announced on Monday in child benefit for any family where one parent has a higher rate tax liability must be seen as a massive boost for the tax avoidance industry in the UK — spreading its reach to those on income scales normally largely immune to its charms.

As I have pointed out, for a family caught by the change the parent of two children  with income of just over the limit faces an effective 100% tax rate on all income in a rage from about £44,000 to £47,000. That is a gift to the tax abusers.

What will they do? Here are some ideas:

Shift investment income between spouses

Investment income will now be shifted to the spouse with lower tax rates. This is often bad for family cohesion — especially in the case of divorce. It is also contrary to the economic reality of many family's situation. But it will pay, so people will do it.

Shift income in self employment

There have been numerous attempts to crack down in income shifting in self employment — from attacks on ‘wife’s wages’ to the Arctic Systems case and any number of steps in between. You can be sure that this new measure will encourage vast amounts of income shifting in self employment.

Extra pension contributions

These will reduce income and so be incredibly effective in taking income below the higher rate tax band. They can be back dated.

Gift aid contributions

These also reduce income — and can be backdated — so creating tax saving possibilities.

Salary sacrifice schemes

Buying more holiday, pension, and the like suddenly becomes so attractive if child benefit is retained.

Bonus deferral

Even if child benefit is kept for one more year deferring a bonus will be well worthwhile.

Reducing hours

Why not? It will pay handsomely!

I could go on — but you get my drift.

Schemes will already be under construction; whole marketing programmes will be under consideration.

And all this will reduce tax yield in all likelihood by more than the child benefit saved.

This really is a government that cannot think about simple things.

But then, George Osborne and David Cameron have never done a day’s real work, have they? No wonder they can’t organise the proverbial in a brewery.