Editorial & Advertiser Disclosure Global Banking And Finance Review is an independent publisher which offers News, information, Analysis, Opinion, Press Releases, Reviews, Research reports covering various economies, industries, products, services and companies. The content available on globalbankingandfinance.com is sourced by a mixture of different methods which is not limited to content produced and supplied by various staff writers, journalists, freelancers, individuals, organizations, companies, PR agencies Sponsored Posts etc. The information available on this website is purely for educational and informational purposes only. We cannot guarantee the accuracy or applicability of any of the information provided at globalbankingandfinance.com with respect to your individual or personal circumstances. Please seek professional advice from a qualified professional before making any financial decisions. Globalbankingandfinance.com also links to various third party websites and we cannot guarantee the accuracy or applicability of the information provided by third party websites. Links from various articles on our site to third party websites are a mixture of non-sponsored links and sponsored links. Only a very small fraction of the links which point to external websites are affiliate links. Some of the links which you may click on our website may link to various products and services from our partners who may compensate us if you buy a service or product or fill a form or install an app. This will not incur additional cost to you. A very few articles on our website are sponsored posts or paid advertorials. These are marked as sponsored posts at the bottom of each post. For avoidance of any doubts and to make it easier for you to differentiate sponsored or non-sponsored articles or links, you may consider all articles on our site or all links to external websites as sponsored . Please note that some of the services or products which we talk about carry a high level of risk and may not be suitable for everyone. These may be complex services or products and we request the readers to consider this purely from an educational standpoint. The information provided on this website is general in nature. Global Banking & Finance Review expressly disclaims any liability without any limitation which may arise directly or indirectly from the use of such information.

Is the High Income Child Benefit Charge Unfair?

Tax Preparation Specialist Evaluates Criticisms of High Income Child Benefit Charge

Critics of the High Income Child Benefit Charge, where higher-rate taxpayers pay a tax charge when receiving child benefit, have long-argued that the charge is fundamentally unfair – both in design and practice. Tax preparation specialist David Redfern, managing director of DSR Tax Claims Ltd, appraises the tax charge and associated criticisms and questions whether those criticisms have any validity.

Introduced in January 2013, the High Income Child Benefit Charge (HICBC) was intended to boost the Treasury’s resources by restricting Child Benefit for taxpayers with an adjusted net income of £50,000 or more. By placing a tax charge of 1% on each £100 over that £50,000 threshold, this meant that taxpayers who earn more than £60,000 would receive no child benefit. However, as Redfern explains, the tax charge has been controversial from the very beginning, stating “Because the tax charge targeted individual high earners, rather than household income, HICBC has faced the very valid criticism of inequity from the very start in that a household with a sole earner who has an adjusted income of £50,000 or more is affected by this tax charge whilst a household with two earners, both earning £49,000, escapes the charge despite having nearly double the household income. Leaving the question of whether it was right to make such changes to a universal benefit which was intended to be for the benefit of the child, not the parent, aside – the method by which it has been implemented opens up a number of valid comments about its fairness”.

The High Income Child Benefit Charge is levied against any high earner living in a household which is claiming child benefit, regardless of whether they are the person claiming child benefit or whether they are a parent of the child receiving the benefit. One of the most common criticisms of the charge is that the parent claiming child benefit is often not the same person who faces the high income tax charge. Redfern added “The parent who claims child benefit is no longer treated as a totally separate entity for taxation purposes to the high earning taxpayer, eroding the independent status for taxation which was only achieved in 1990. Instead, this tax charge wears away any sense of privacy for parents as individuals as they are now forced to share such financial information between them”. In instances where a taxpayer may not know or be able to ask whether their partner receives child benefit, they can write to HMRC who will provide minimum information to clarify the tax position.

A further criticism is that the tax charge has shifted hundreds of thousands of taxpayers into the Self Assessment system. Redfern explained “High-earning taxpayers affected by the tax charge have the choice to end the child benefit claim, or continue to receive child and then pay the tax charge via Self Assessment at the end of the tax year. While HMRC has always argued that recipients can avoid the charge by stopping their child benefit claim, there are other good reasons to continue with a child benefit claim – not least that it also ensures that the person claiming child benefit, usually the mother, retains a full National Insurance record for the first 12 years of parenting when it may be patchy, therefore retaining their entitlement to a state pension and other National Insurance-dependent benefits. However, the most moderate estimates are that this has brought an additional 300,000 taxpayers into the Self Assessment system – not only creating a bureaucratic burden on the taxpayer who is now faced with completing a tax return, but also creating a further burden on HMRC’s administration of the Self Assessment system”.

As recently as September 2019, criticisms of the High Income Child Benefit Charge were being debated in Parliament, with a further criticism relating to the fixing of the £50,000 threshold. Redfern stated “Whilst other tax thresholds have increased over time, the £50,000 threshold has remained fixed since January 2013. This means that there are now 370,000 more families being confronted by the choice to pay this tax charge or lose child benefit in the current tax year than there were in 2013/14, when it was introduced, creating an additional financial burden on families who are already feeling squeezed enough as it is”. HMRC undertook to review ‘Failure to Notify’ penalties earlier in the year which resulted in over 4,800 penalties for failing to notify HMRC of HICBC liability being refunded in June 2019. However, Redfern stated “Decisions about the equity of HMRC’s penalty system aside, it is clear that criticisms of the way in which HICBC is administered are valid. From eroding the independent status of individuals for taxation purposes to unfairly targeting sole earners whilst dual income household remain unaffected, it is evident that the High Income Child Benefit Charge was ill-planned and should be reconsidered”.