07 June 2022
Following the introduction of the high income child benefit charge (HICBC) in 2013, HMRC has recently released a qualitative survey looking at the reasons why many taxpayers continue to misinterpret the rules or remain ignorant of their responsibilities.
The HICBC claws back child benefit received where a claimant or their living partner has income for a tax year that exceeds £50,000. Unusually for the UK tax system, couples do not have to be married or civil partners for the legislations to apply. For many taxpayers, the only reason they have to join the self-assessment system is to pay the HICBC and taxpayers with fluctuating or complex income patterns find compliance particularly difficult.
Despite the HICBC having been in place for many years, there is still a sufficient level of non-compliance that HMRC recently conducted a qualitative survey to see why. As might have been expected, rather than deliberate evasion, the main reasons included people: being unaware of the rules; being unaware that due to a change in their circumstances they now fell into charge; or, finding the self-assessment process bewildering.
Some people also assume that as HMRC knows how much they are paid, and how much child benefit they receive, this would be regulated automatically. Whilst HMRC may eventually identify cases of non-compliance, evidence of tax tribunal cases suggests there is often a delay of two or more years, allowing debt to build up.
Of most concern, however, are the consequences for people who simply opt not to claim child benefit to avoid having to deal with the charge. This may seem a sensible move, but a child benefit claim also serves to maintain National Insurance contribution records for state pension purposes. Without it, non-working people who otherwise qualify for a credit on their contributions record may find, many years into the future, that they can only claim a reduced state pension. To maintain pension rights without getting caught up in self-assessment, it is necessary for individuals to establish their claim to child benefit but to ask for it not to be paid.
It seems unreasonable that the rules for HICBC are so complex and counterintuitive. It is also harsh that taxpayers are being drawn into self-assessment purely to deal with this clawback. The suggestion made in the survey, of a simplified form for people in this position, therefore has its attractions.
At some stage in the future people may find that they have made insufficient contributions or claimed insufficient credits to receive the state pension they would otherwise have been entitled to because of actions taken now to avoid being drawn into self-assessment by the HICBC. This is a ticking time bomb that should be addressed by HMRC ensuring appropriate education and guidance is provided to affected individuals, rather than waiting for crisis to hit.