HMRC continues to scrape the barrel by clawing back child benefit

Child benefit spending is forecast to be £12.5bn in the UK in 2023/24. Since 2013, families in receipt of child benefit have been liable to repay an amount equivalent to some or all of the child benefit received if the recipient or their partner had adjusted net income of more than £50,000 in a tax year. 

The fundamental issue taxpayers face with complying with the high income child benefit charge (HICBC) is that most of the time, the person liable to the HICBC is not the same person who receives the child benefit payments. The latest child benefit statistics show that 87% of child benefits are paid to female claimants, while 77% of HICBC liabilities are paid by male taxpayers. In addition, the freezing of the £50,000 threshold has led to twice as many families being liable to the HICBC than when the policy was first introduced. 

The amount of revenue raised due to the HICBC is believed to be just over £1bn a year. This is due to a combination of the receipts from the HICBC, which average only £400m each financial year, and because individuals opt out of receiving child benefit, presumably as they expect to incur the charge. That represents less than 10% of the anticipated total annual child benefit spend. The relatively small sum clawed back through the HICBC is further mitigated by staff costs and other overheads in administration and compliance activity. RSM UK’s freedom of information request revealed that HMRC has received over 1,000 litigation cases relating to HICBC and associated penalties since. We await further details of some of the associated costs of this litigation.

Clearly the system is broken. HMRC assumed responsibility for the administration of child benefit over 20 years ago and should have all the information needed to avoid paying out child benefit to those liable to the HICBC. Instead, it is up to parents to inform HMRC and self-assess the HICBC. Failure to do so leads to penalties and interest, which strikes many as being inherently unfair. 

Against a backdrop of a £35.8bn tax gap, of which more than half is estimated to relate to small businesses, perhaps HMRC should divert precious resources to more profitable tax collection activity than targeting parents in receipt of just over £2,000 per year for two children. With HMRC facing similar criticism and accusations of pursuing the wrong people in relation to ‘loan charges’, it is perhaps little wonder that the chancellor is reportedly considering making changes to the HICBC regime in the forthcoming Budget.

In the longer term, any incoming government should carefully consider if child benefit should return to providing universal welfare support to parents, or if it is to remain effectively means tested as it has been since 2013. If so, reforms must be made to child benefit administration to avoid making overpayments from the outset, simplifying the system and reducing costs for all.