Thousands of parents may no longer need to endure the cumbersome task of filling out self-assessment tax forms, thanks to the government’s recent changes to the high income child benefit charge that affects higher earners. Instead of requiring registration for self-assessment, the government plans to recoup the money owed through individuals’ PAYE tax codes. This move aims to alleviate the issue of families facing fines due to unintentional non-payment of the charge.
The high income child benefit charge, introduced in 2013, has been a subject of controversy. It is a means for the government to reduce the amount paid to higher earners, as child benefit is not means-tested. When a parent’s annual income exceeds £50,000, a portion of the state payment is clawed back through the tax system.
Often referred to as a “tax on children,” this charge has led to a significant number of parents repaying some or all of their child benefit. In 2019-20 alone, about 373,000 individuals were affected, contributing £416 million to the government’s revenue. However, more than 620,000 families had chosen to opt out of receiving child benefit by August 2020 to avoid the charge.
One source of controversy surrounding this charge is the fact that frozen tax thresholds and inflation-driven wage increases have ensnared more parents in its reach. Investment firm Quilter noted that if the £50,000 threshold had kept up with inflation, it would be above £65,000 today.
The charge percentage is 1% of the child benefit amount for each £100 of income, ranging from £50,000 to £60,000. For incomes exceeding £60,000, the charge is 100%, effectively resulting in no child benefit.
The government aims to “simplify” the process by allowing employed individuals affected by the child benefit tax charge to pay it through their tax code, eliminating the need for self-assessment registration. Details regarding this payment method will be provided at a later stage, as stated in a government statement.
Commenting on this development, Sarah Coles, Head of Personal Finance at Hargreaves Lansdown, expressed that parents earning just above £50,000 will be spared from the unnecessary hassle of self-assessment registration solely for child benefit repayment.
Recognizing the flaws of the high income child benefit charge, Steve Webb, former pensions minister and current partner at LCP, highlighted the surprise many families faced due to their lack of awareness about the tax return requirement once their income exceeded £50,000. Those unaware of the system have not only had to pay the charges but have also incurred fines.
In summary, the government’s decision to streamline the process of repaying the high income child benefit charge through tax codes is a long-awaited and welcome change, benefiting thousands of parents.
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