Child Benefit: HMRC urged to raise high income threshold for payment clawbacks to £60,000

Martin Lewis explains who is eligible for Child Benefit

We use your sign-up to provide content in ways you’ve consented to and to improve our understanding of you. This may include adverts from us and 3rd parties based on our understanding. You can unsubscribe at any time. More info

Child Benefit can be claimed by anyone who is responsible for raising a child but for those who earn over £50,000, some of the money will need to be paid back to the Government through Income Tax. Ahead of Rishi Sunak’s Autumn Budget, the Low Incomes Tax Reform Group (LITRG) has called for the high income child benefit charge (HICBC) threshold to rise.

Basic rate taxpayers hit

LITRG warned the Government’s current aims are contrary to the original policy intent and basic rate taxpayers are now liable to the charge as opposed to high earners. LITRG has recommended the threshold go up from £50,000 to £60,000, to take account of “nearly nine years of inflation.”

Tom Henderson, Technical Officer for LITRG, commented: “When the HICBC was announced in 2010, and introduced in January 2013, the Government’s policy intent was that it would only affect higher-rate taxpayers.

“For the 2012/13 tax year, the higher-rate threshold – the point at which an individual is liable to the higher rate of tax – was £42,475. Since then, the higher-rate threshold has risen broadly in line with inflation but the £50,000 threshold for the HICBC has remained static. The Government has so far resisted calls to up-rate the £50,000 threshold, but we believe this intransigence is untenable because the higher-rate threshold overtook it from April 6, 2021.”

LITRG explained taxpayers liable to the charge must file a Self Assessment tax return, even though HMRC may already know about all of a taxpayer’s income through the PAYE system. An individual can be liable to the charge even though it was their partner who claimed child benefit, which LITRG argued is contrary to the principle of independent taxation (this is supposed to mean individuals are taxed separately on their income and capital gains without reference to their partner).

What are the current rules?

If either partner earns between £50,000 and £60,000 a year before tax, they’ll have to pay a portion of their Child Benefit back in extra Income Tax. Claimants will still get paid the full amount of Child Benefit each month but where people claim as a couple, the higher earner will have to pay more Income Tax to repay the portion of Child Benefit they no longer qualify for.

Claimants will have to pay back one percent of their family’s Child Benefit for every extra £100 earned over £50,000 each year.

So, for example, if a claimant earns £51,000 a year their income is £1,000 (10 x £100) over the limit, so the extra tax is 10 percent of their Child Benefit of £20.70 a week. So, they’ll pay an extra tax of £107.64 a year (£2.07 x 52).

Those who earn over £60,000 will need to pay back the Child Benefit in its entirety. LITRG argued, despite its name, the HICBC can have consequences for those who do not consider themselves to have a high income.

This, it detailed, is because the measure used to determine liability to the charge ignores factors such as whether the household has only a single earner, housing costs or family size. This means families can be caught by the charge despite having very little disposable income.

TV licence refund: Thousands of people could get money back [INSIGHT]
Outrage over £20,000 state pension rise [WARNING]
Taxpayers told to ‘be aware’ they may be at risk of HMRC investigation

Alternatively, individuals who usually have a lower income may end up being liable to the charge because of a one-off event, such as taking money out of their pension. And as the charge can affect taxpayers whose only source of income is already fully taxed under PAYE, there is a significant lack of awareness among those affected. This has led to taxpayers receiving backdated assessments of unaffordable sums.

In its Budget representation, LITRG also called for the point at which Child Benefit is fully clawed back to increase from £60,000 to £75,000. This is to address the fact that larger families can face high effective marginal tax rates when they are liable to the charge. For example, where the charge applies to withdraw a Child Benefit claim for two children, the taxpayer must pay £60 in tax and National Insurance for an additional £100 earned between £50,000 and £60,000. For three children, the rate increases to £67 for an additional £100 earned.

LITRG argued the existence of the charge can discourage people from claiming child benefit entirely. This can have consequences for the would-be claimant’s state pension record, as they potentially miss out on National Insurance credits.

LITRG concluded by urging the Government to ensure that taxpayers do not miss out on these credits where child benefit is not claimed, as Mr Henderson explained: ” The HICBC has been a controversial policy since its introduction. We urge the Government to carry out a review of the policy and address those areas where the charge is not meeting its original objectives.”

Child Benefit payments

Child Benefit can be claimed by those who are raising a child who is under 16 or under 20 if they’re in approved education or training. It is paid once every four weeks and there’s no limit to how many children can be claimed for.

There are currently two Child Benefit rates. £21.15 will be paid for eldest or only children, with £14 per child awarded for additional children.

Child Benefit can be claimed from as soon as a child’s birth is registered. It can take between six to 12 weeks to process a new Child Benefit claim but the payments can be backdated by up to three months.

Only one person can get Child Benefit for a child so parents will need to decide between them who should make the claim. This is important to note as the person who claims will get National Insurance credits towards their state pension if they are not working or earn less than £184 per week.

How to make a claim

To make a claim for the first time, a CH2 form will need to be completed and sent to the Child Benefit Office. This form can be found on the Government’s website.

To add a child to an existing claim, people will need to call the Child Benefit helpline if:

  • Their child is under six months old and lives with them
  • Their child was born in the UK and their birth was registered in England, Scotland or Wales more than 24 hours ago
  • They’re a UK or Irish national and they’ve lived in the UK since the start of their claim

The Child Benefit Office can be contacted for help with applications and on top of this, impartial guidance can be sought from the likes of Citizens Advice and Money Helper.

Source: Read Full Article