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Call for government to increase child benefit earnings threshold

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Written by: Paloma Kubiak
13/12/2019
Households with children are put off claiming child benefit for fear of tax charges so the earnings threshold should be increased, a tax help group suggests.

The influential Low Incomes Tax Reform Group (LITRG) is calling on the new government to reform the High Income Child Benefit Charge (HICBC).

Where a claimant or their partner earns more than £50,000, parents are put off claiming child benefit altogether.

This is because they need to submit a tax return and HMRC will claw back part of the child benefit through a tax charge.

For someone earning over £60,000, the tax charge entirely wipes out the value of the child benefit. But parents can choose to receive no payments once they’ve applied for the benefit, and this charge won’t apply.

But in choosing not to submit a benefit claim, parents miss out on vital National Insurance Contributions, potentially missing out on receiving the full state pension.

The HICBC was introduced in January 2013 and the threshold has remained at this level since.

Victoria Todd, head of LITRG team, said: “Despite its name, the high income child benefit charge can have consequences for the lower earner in a couple even though the liability to the tax charge falls to the higher earner.

“This is because where the tax charge applies a household may decide, quite understandably, not to claim child benefit at all. But this means that the lower earning individual may miss out on National Insurance credits, due for the first 12 years, which help to build entitlement towards a state pension.

“The government’s solution is to allow couples to claim child benefit regardless and, if they wish to avoid the charge, they can choose not to receive payments – but this is not widely known and to many, claiming and receiving a benefit are the same thing.

“HMRC has improved the guidance on the child benefit claim form but there is a risk of that guidance being missed if people do not get as far as requesting a form. It is important for HMRC to improve communications and awareness and consider other ways of ensuring lower earners do not miss out on these valuable credits, especially as the current rules only allow child benefit, and therefore the associated National Insurance credits, to be backdated for three months.

Todd said that when introduced in 2013, the HICBC was intended to affect only the top 10% of earners, but each year the proportion of those affected increases as wages rise.

She added: “LITRG recommends that the next government considers uprating the £50,000 threshold, just like some other tax thresholds and allowances, to minimise the adverse consequences for those families it affects and ensure the policy works in the way originally intended.”

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