High income child benefit charge - the taxpayer strikes back

03 May 2023

The high income child benefit charge (HICBC) was launched with a blaze of publicity in 2013. In summary, where one of a couple (either married, in a civil partnership, or living together as if they were, and not permanently separated) claim child benefit, and one of them has an adjusted net income of £50,100 or more, the higher earner will incur the HICBC. It is necessary to file a self-assessment tax return (SATR) so that the charge can be assessed. For taxpayers with an adjusted net income in excess of £60,000, whose HICBC will be equal to the total amount of child benefit received by the household, it may be simpler to opt out of receiving child benefit than filing a SATR and incurring the HICBC on an annual basis. 

In a recent case, a taxpayer who had been childless at the time of the changes, and well below the threshold, subsequently had a daughter. The family received a leaflet about child benefit, which the wife duly claimed. This mentioned that there would be tax consequences if either of the couple earned over £50,000 but gave no instructions on what to do if this was the case. As the taxpayer was still below the threshold, he was not concerned by this.

In 2015, he got a pay rise taking him over the £50,100 threshold. He had had no communication about the HICBC since the birth and was unaware that he needed to take action. As a PAYE taxpayer, he was used to having tax deducted from his employment income at source.

He only became aware of a problem when HMRC issued a ‘nudge’ letter, at which point he dealt with the issue swiftly, advising HMRC of his position and stopping future benefits. HMRC issued discovery assessments for the 2015/16, 2016/17 and 2017/18 tax years. Where a taxpayer has taken ‘reasonable care’, HMRC has only four years to raise such assessments, however the earlier two assessments were raised after this deadline. HMRC claimed the taxpayer had not taken reasonable care and so the earlier two assessments were in time. However, the taxpayer appealed and won, resulting in the earlier two assessments being out of time.

This raises the question of how many otherwise compliant taxpayers have failed to pay the HICBC because their circumstances have changed since HMRC’s initial announcements? Whilst the government has access to child benefit records and PAYE records in their systems, it does not seem to have connected the two in a timely manner in order to help people meet their responsibilities.

Until recently, there have been concerns about taxpayers who, rather than registering for child benefit, then refusing payment, had simply failed to register. These individuals would have found that they did not get national insurance credits for years when they were not working but had a child eligible for child benefit. Thankfully the government has recently announced that the rules are to be changed to grant the credit retrospectively.

The HICBC highlights an inelegant system which pulls taxpayers into self-assessment but does not always give them sufficient information to alert them of this new requirement, then punishes them for failing to register. Given that appeals against assessments on this pop up regularly ten years after the liability was introduced speaks for itself.