The Office of Tax Simplification (OTS) has published an evaluation update paper on the High Income Child Benefit Charge (HICBC) and its wider implications. The paper is one of four separate notes accompanying the OTS’s everyday tax evaluation paper, providing an update on its 2019 reviews about simplifying everyday tax for smaller businesses and taxation and life events. The note considers the operation and collection of HICBC, including how child benefit is claimed and how this relates to the HICBC and other matters, such as national insurance credits and the provision of National Insurance numbers.
Key issues relating to the HICBC
The OTS notes that HMRC have made limited progress on the recommendations relating to the HICBC made in the OTS’s 2019 Life Events review. HICBC raises over £1 billion each year but is hard to administer as it is hard for many families affected to know about the charge, and complying with it involves filing a Self Assessment tax return.
The government’s policy has been not to increase the threshold at which the HICBC applies. This has had the affect that – according to the Institute for Fiscal Studies – it will by now be affecting more than one in five of the families eligible for the benefit. HMRC no longer send an annual child benefit statement to recipients, in which they could remind people about the charge. Neither is the HICBC mentioned in the personal tax account, although there is a child benefit ‘tile’ which makes other points about the benefit.
Key issues that add to the complexity of the operation of Child Benefit and the HICBC, which HMRC and the government should review, including:
- the language used is confusing, as one is required to make a ‘claim’ to child benefit even when opting out of receiving the payments
- the need to claim child benefit (even if opting out of receiving it) so that the child can automatically receive their National Insurance number at 16
- allowing those who didn’t claim child benefit to receive national insurance credits to which they are eligible
- how HMRC can improve awareness of the charge (it is estimated that the proportion of families affected is now one in five), for example through HICBC in the personal tax account
- improving the guidance available to help people understand their responsibilities in relation to reporting and paying the HICBC (in 96% of the 125,594 compliance checks on this were opened in the 2019-20 tax year additional tax was due).
The OTS note for the future, it would be helpful if child benefit and the HICBC could be included in the Single Customer Account.
The evaluation paper can be found here: OTS evaluation paper on the High Income Child Benefit Charge – GOV.UK (www.gov.uk)
We are experienced with the compliance matters around the HICBC. Please do contact us if you wish to discuss or need assistance with income tax compliance.
