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Abolish child benefit claw-back now!

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An appeal by HMRC for employers to help employees understand their child benefit entitlements sent Rebecca Cave into an indignant rage. Why should employers be asked to do this?

14th Apr 2022
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Child benefit is a universal state benefit paid to all parents who make a claim (if they have the right to live in the UK). It should not have bearing on the payroll function, but it does. 

The link between income tax deducted under PAYE by employers, and a benefit designed to help mothers feed their children, is a pernicious piece of law called the High Income Child Benefit Charge (HICBC). The excellent Revenue Benefits website gives a fuller explanation of the history of family allowances that preceded child benefit, which was introduced in 1977. 

History lesson

Back in October 2010 George Osborne (then Chancellor of the Exchequer) announced at the Conservative Party conference that Child Benefit would be withdrawn from families with a higher rate taxpayer. I believe at this stage he had no firm idea of how this would be done in practice, as the tax system and child benefit system were not linked at all, although HMRC is responsible for both.

In the 2012 Spring Budget Osborne’s bright idea had morphed from targeting all higher rate taxpayers with qualifying children, to those with income of £50,000 or more. At that time (2012/13) individuals were liable to pay 40% tax on income above £42,475 (£34,370 + personal allowance: £8,105), so the £50,000 threshold only hit those comfortably within 40% tax band.

The HICBC bizarrely came into effect from 7 January 2013 (part way through the tax year), to impose a charge equivalent to 1% of the child benefit received by the family, for every £100 of adjusted net income above £50,000. Those with income of £60,000 or more have all of their family’s child benefit clawed back by way of this extra tax charge.     

Train wreck envisaged      

Before the HICBC came into effect, tax professionals criticised the plans on numerous grounds including:

  • It breaks the principle of independent taxation of husband and wife.
  • Individuals would not be aware that they have to declare a benefit received by another person.  
  • It would drag taxpayers into self-assessment purely to declare and pay the HICBC.
  • It unfairly penalises couples where one person earns most of the family income pushing them into higher rates, compared to those couples who have more equally balanced incomes. 
  • It generates very high marginal tax rates for parents. 

At the Digita conference in 2012 Rebecca Benneyworth called for the HICBC to be reversed, commenting, “It is the train wreck we were expecting and it’s picking up speed. It’s going to be a disaster for us and even worse for HMRC.” 

And so it came to pass.

Penalty bonanza

HMRC has issued over 40,000 penalties (probably more) to parents who failed to declare the child benefit on their tax returns and thus declare their lability to pay the HICBC. 

Most of the taxpayers who received such penalties claimed that they had no knowledge of the need to pay the HICBC. In 2019 HMRC agreed to cancel 6,000 penalties relating to the tax years 2012/13 to 2015/16, if the taxpayer had a reasonable excuse for failing to notify HMRC of the benefit they have not received, and they were not already within self-assessment.  

Remember, HMRC is the organisation that administers and pays child benefit. But it can’t tie up the tax records of the taxpayer who is liable to pay the HICBC, with records of the recipients of child benefit. This is because those individuals are different people, and the child benefit system is not programmed to talk to the tax system – apparently.       

Hits basic rate taxpayers 

From 6 April 2021 the 40% tax band starts at £50,270 (£37,700 + personal allowance of £12,570), so it is no longer just “higher rate taxpayers” who pay the HICBC, but basic rate taxpayers are also caught.   

The policy behind the HICBC has failed. It is taking away money from families that need that benefit. 

The existence of the HICBC also discourages parents from making a claim for child benefit when their child is born. This deprives the stay-at-home parent of NI credits, which can have an adverse effect on their entitlement to the state pension.

The child may also have difficulty when entering the workforce, as they may not have a National Insurance number allocated to them.

As Sue Christensen commented on Twitter: “It’s anti-family. A disgusting mess.”

My advice to Sunak

In my pre-Budget blog, I advised the Chancellor to scrap the HICBC. I hope he listens and does one good thing before he leaves office.

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Replies (31)

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By Jane Wanless
14th Apr 2022 17:09

It's always annoyed me that a couple each earning, say £49000 would receive full benefit, but a couple with one parent earning, say £70k and a stay-at-home spouse (sometimes necessary when the young couple have moved away from parents) lose out.
I know tax isn't designed to be "fair", but ...

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Replying to janewanless:
paddle steamer
By DJKL
19th Apr 2022 15:57

The tax anomaly re families that bugs me is the couple with one earning £70k and the other £15k as compared with the couple each on £42.5 and their marginal rates of tax, the 40% rate in such a scenario really hurts.

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the sea otter
By memyself-eye
15th Apr 2022 08:18

I have children (who themselves have children) who are possibly caught by this nonsense. I could ask them how much they earn (not my business) and then try to explain the consequences of this clawback (not really interested) but I won't (I'm retired).
Yet again the 'powers that be' have created an utterly stupid piece of legislation.

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Chris M
By mr. mischief
15th Apr 2022 10:18

We've had some right numpties as Chancellors. 10% starting rate, child benefit tax and now a clueless mid-year change to NI.

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By Graeme Lindsay Abdn
16th Apr 2022 14:37

If you wish to avoid the clawback, the spouse receiving the child benefit just needs to stop claiming. What can go wrong? What's that? https://assets.publishing.service.gov.uk/government/uploads/system/uploa... Oh dear! To add insult to injury!

Has OFT not told HMRC to scrap this unfair tax charge? Nevermind, HMRC can just make it up as they go along: https://www.gov.uk/government/publications/discovery-assessments/discove...

Refusal to increase income limit to match higher rate start rate shows it has gone beyond Government's original policy decision and should be voted on again by Parliament. Sunset legislation clauses for tax policy initiatives anyone?

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By lukeoliver
17th Apr 2022 10:00

Why Indeed!!

Employers are being asked to give employees the bad news about the NIC increase as well and put it onto payslips.

An increasing trend of HMRC asking others to deliver the bad news.

However, assistance from HMRC int he other direction is in very short supply.

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By fozia
17th Apr 2022 11:58

Agreed. Of all the time wasting exercises I have to do, this is by far the most irritating one.
Tax thresholds have not kept up with rising salaries over the decades and now tax initially intended for the top x% is being applied to the masses scraping a living (e.g. IHT).

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RLI
By lionofludesch
18th Apr 2022 17:38

Bloody cheek.

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Ivor Windybottom
By Ivor Windybottom
19th Apr 2022 11:54

Maybe it is time to abolish Child Benefit. We need more joined up thinking about how to support those in most need.

Paying a universal benefit because it reaches non-working mothers for their housekeeping is 1950's thinking - the world is not like that any more. It is even paid 4-weekly, but no real world bills are payable on such a bonkers basis.

Using the tax system to fix a mis-directed state benefit is not a good way to administer this. Surely it is better directed through Universal Credit or something similar?

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Replying to Ivor Windybottom:
RLI
By lionofludesch
19th Apr 2022 12:07

Might be right there, Ivor.

Would you be prepared to join Tax Dragon's Cabinet?

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Replying to lionofludesch:
Ivor Windybottom
By Ivor Windybottom
19th Apr 2022 14:02

Count me in!
I'm just waiting for confirmation from HMRC.....

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Replying to Ivor Windybottom:
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By TASG
26th Apr 2022 16:18

I'm deeply concerned by the rapidly ageing population and I think subsidising citizens to have children is a wise use of state funds and an investment in the future.

I have previously expressed that I think pension benefits should be clawed back as well, over a wider band.

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By Paul Crowley
19th Apr 2022 20:23

I agree
The time wasted on this by far exceeds the benefit
If HMRC cannot join these things up then they should move onto better targets where more tax is at at risk

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Replying to Paul Crowley:
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By TASG
26th Apr 2022 16:19

They have issued tens of thousands of HICBC penalties to PAYE taxpayers, and the compliance is easily paid for by these penalties.

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By North East Accountant
20th Apr 2022 09:42

While he's on scrapping silly ideas, maybe he can scrap Marriage Allowance too.

Thanks (2)
Replying to North East Accountant:
RLI
By lionofludesch
20th Apr 2022 12:51

North East Accountant wrote:

While he's on scrapping silly ideas, maybe he can scrap Marriage Allowance too.

Marriage Allowance is sound in principle, albeit it does not go far enough.

The way it is administered, however, is absolute barmpot.

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By Mike Warburton
20th Apr 2022 10:03

I agree entirely Rebecca. A few weeks after it was announced I was at the treasury and challenged the minister to justify the charge in the light of the considerable criticism, for all the reaons you say. He chose not to do so, but then again it was their Christmas party so I was probably speaking out of turn, not for the first time

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By Ammie
20th Apr 2022 10:12

Another ill thought out system that has missed the mark, and another task that has been passed on to the taxpayer to administer..................or else!

I often wonder how long it will be before HMRC will have little use for many staff and will just put their feet up and wait for the digital systems to issue the penalties. Their work load is shrinking every year whilst ours is growing! Legislation is a wonderful process and solves many government failures on the basis that making a matter someone else's legal obligation is so much more easier and cost effective.

Not a good sign of what is to come with MTDfITSA.

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By petestar1969
20th Apr 2022 10:14

I agree the HICBC is pony but is it right that someone who earns £50,200 a year is just a basic rate taxpayer?

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Replying to petestar1969:
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By TASG
26th Apr 2022 16:20

Yes? (20% + 13.25% feels like quite a bit).

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By rocket_queen
20th Apr 2022 10:14

Back when I was married the HICBC annoyed me. I was always the main carer of the children and the main earner (hence now being divorced). I claimed CB because I didn't earn enough to lose it all, but still had to pay some of it back. At least then, we had two personal allowances between us to reduce the tax burden.

Since I've been single (and still 100% responsible for raising the children), I had to increase my hours to cover the additional costs. Now my gross income is on par with what our combined gross income as a couple was. However now, as a lone parent, I only have one personal allowance for that income. I have no child benefit. I have no benefits full stop. Not even the £50k a year the Daily Mail told my ex mother in law all single mothers get to live on in their 10-bed mansion council houses.
My net income is still significantly lower than when there were two of us.

Perhaps the silver lining would be that I could claim via CMS to force the ex husband to contribute towards his kids? Unfortunately no. He works cash in hand these days so has "nil" income. Despite me frequently pointing out to HMRC and CMS that he is clearly committing tax fraud and depriving his children of the money due to them, they don't care as he is too small and insignificant. He somehow rents a flat and runs a car and shops at Waitrose on zero income.

I often wish the world was run by a single mum with a deadbeat ex. I feel it would finally even up the balance a bit.

Thanks (9)
Replying to rocket_queen:
RLI
By lionofludesch
20th Apr 2022 13:01

rocket_queen wrote:

Back when I was married the HICBC annoyed me. I was always the main carer of the children and the main earner (hence now being divorced).

You divorced because your income was higher than your husband's??

I would imagine that there's a few open-mouthed men reading this.

My wife's income is zero. We're still married.

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Replying to lionofludesch:
Stepurhan
By stepurhan
21st Apr 2022 08:42

I suspect it was the combination of roles that led to the divorce. If someone is the main earner, then they would expect the other person to pick up more of the caring duties to balance the load.

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Replying to lionofludesch:
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By rocket_queen
21st Apr 2022 10:38

lionofludesch wrote:

rocket_queen wrote:

Back when I was married the HICBC annoyed me. I was always the main carer of the children and the main earner (hence now being divorced).

You divorced because your income was higher than your husband's??

I would imagine that there's a few open-mouthed men reading this.

My wife's income is zero. We're still married.

I mean, I wasn't planning on making this an essay on my reasons for divorce. My main point was how yet again lone parents are penalised. But to reassure you and all the other men out there who are threatened by the idea of a successful woman, no I did not divorce due to him earning less. I divorced due to finally finding the courage to leave an abusive relationship which was both physically and emotionally abusive. A factor was me being the main breadwinner, but also responsible for all household and childcare tasks, not being allowed to spend money or ever go out anywhere other than work or school runs. So perhaps I oversimplified it by saying I was the main breadwinner and main childcare so got divorced...

Wow.

You know, even if I had just got divorced because he wasn't wealthy enough for me. It wouldn't invalidate my point about HICBC...

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Replying to rocket_queen:
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By Brodders
21st Apr 2022 09:05

good to see it being the 21st century hasn't affected the responses here!

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Replying to rocket_queen:
Lone Wolf
By Lone_Wolf
21st Apr 2022 12:57

You have my sympathy. I don't have the exact same situation as you - my wife has a condition which means she can't work (well she could, she'd just be crippled afterwards so not worth it) so I am the only breadwinner. We also have two kids with additional needs to throw into the bargain, so that further scuppers the ability for her to work.

I'm on what would be considered a healthy wage, for which I'm grateful, but it does mean that as well as a HICBC claw back, we are also entitled to no benefits.

The bit that bugs me is that as a family, our benefits position is assessed as a family unit, but our tax positions are assessed individually (hence the HICBC and only 1 PA being used). I believe there should be a mechanism for opting to be taxed in the same way as assessed for benefits.

Now, having had a bit of a whinge, I still have it a lot better than many, so I can't grumble too much.

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By Duggimon
20th Apr 2022 10:17

It has always been absolute idiocy but all the more so now that it is entirely misnamed. For a family of, say, two adults and three kids, with only one parent at work, £50,000 is not high income. It might be somewhat more than the median salary, though not hugely so, but in the majority of cities at least it's not enough to be considered anywhere near high income.

Taxing one of the few benefits that remain to those in this situation to help mitigate the proportionately higher impact of cost of living increases on those with children, and taxing it into oblivion no less with the prospect of also fining those in this situation if nobody warns them of the situation, is stupid, unreasonable, adds complexity and secures a relatively paltry sum that would be easily dwarfed by just putting the higher rate band up 1%.

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By justsotax
20th Apr 2022 11:44

the realities of the 'low tax' party.....

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Replying to justsotax:
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By Brodders
21st Apr 2022 07:36

Quite! How unusual for the tories to continue their stealth tax raid. I'm not sure there are any thresholds left to freeze are there!?

This was an appalling idea always and has just proved to be moronic. Bet it has cost us taxpayers a hell of a lot more to chase the unpaid money than it has brought in. What a total joke

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Replying to justsotax:
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By Brodders
21st Apr 2022 07:36

Quite! How unusual for the tories to continue their stealth tax raid. I'm not sure there are any thresholds left to freeze are there!?

This was an appalling idea always and has just proved to be moronic. Bet it has cost us taxpayers a hell of a lot more to chase the unpaid money than it has brought in. What a total joke

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Lone Wolf
By Lone_Wolf
21st Apr 2022 12:48

The quicker the HICBC is scrapped the better.

I'm aware of "someone" who will be paying an effective tax rate of 86.09% on every £100 earned between £50k and £60k.

Scottish taxpayer. 4 kids receiving CB. Student loan deductions.

Ouch!

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