Parents fork out £1.65bn in child benefit tax
Hundreds of thousands of families pay the High Income Child Benefit Charge (HICBC) since it was introduced in January 2013.
Where a claimant or their partner earns more than £50,000, HMRC claws 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.
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 the wage threshold has remained static.
The latest figures obtained by financial advice firm NFU Mutual reveal that 279,000 families repaid £345m in 2016/17, more than double the £116m paid back by parents in the 2012/13 tax year when the charge was introduced.
However, NFU Mutual found that many ‘high earning’ parents are completely opting out of receiving child benefit because of the tax charge and because they need to submit a tax return.
Around 545,000 families cancelled the benefit by August 2018 and NFU estimates the government has saved a further £3.51bn from parents opting out of receiving child benefit altogether.
But this can have negative consequences for parents as cancelling the benefit claim means they miss out on vital National Insurance Contributions, potentially missing out on receiving the full state pension in the future.
NFU claims the HICBC has saved the government more than £5bn since 2013 and an estimated 1.4 million families with children will be affected by the charge in the 2019/20 tax year. That’s nearly one in five (18%) of UK families with children.
It added that given the tax return deadline this Friday 31 January, some parents may not realise they need to repay some or all of their child benefit.
These parents filing for the first time will need to apply for a Unique Taxpayer Reference (UTR) which takes around 10 working days to obtain. This means they will have missed the deadline for this year and will be subject to penalties. However, these parents should speak to HMRC to explain their situation. NFU said HMRC’s online service has been down twice in January alone.
HMRC has already issued nearly £15m in fines for failing to notify them, although they have paid £1.8m back to families following a review.
‘Onus is on you to tell HMRC’
Sean McCann, chartered financial planner at NFU Mutual, said: “The High Income Child Benefit Tax Charge has earned the government billions of pounds since it was introduced.
“The £50,000 threshold hasn’t changed since 2013 meaning more and more families will be affected as salaries increase.
“Many will be unaware of this extra tax and the penalties for failing to declare and pay on time.
“Even if you’re paid through PAYE and have never completed a tax return before, the onus is on you to tell HMRC and pay the tax by the end of this month.
“If you had a pay rise in 2018/19 or moved in with a new partner who claims child benefit you could be caught, even if they’re not your children.”