‘Raise income threshold for child benefit clawback to £60,000’
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In advance of the October UK Budget, the Low Incomes Tax Reform Group (LITRG) is calling for the high income child benefit charge (HICBC) threshold to rise.1
LITRG points out that it is contrary to the original policy intent that basic rate taxpayers are now liable to the charge.2 LITRG suggests that the threshold go up from £50,000 to £60,000, to take account of nearly nine years of inflation. Tom Henderson, Technical Officer for LITRG, said: “When the HICBC was announced in 2010, and introduced in January 2013, the Government’s policy intent was that it would only affect higher-rate taxpayers. For the 2012/13 tax year, the higher-rate threshold – the point at which an individual is liable to the higher rate of tax – was £42,475. Since then, the higher-rate threshold has risen broadly in line with inflation but the £50,000 threshold for the HICBC has remained static. The Government has so far resisted calls to up-rate the £50,000 threshold, but we believe this intransigence is untenable because the higher-rate threshold overtook it from 6 April 2021.” Taxpayers liable to the charge must file a Self Assessment tax return, even though HMRC may already know about all of a taxpayer’s income through the PAYE system. An individual can be liable to the charge even though it was their partner who claimed child benefit, which is contrary to the principle of independent taxation (this is supposed to mean individuals are taxed separately on their income and capital gains without reference to their partner). LITRG points out that, despite its name, the HICBC can have consequences for those who do not consider themselves to have a high income. This is because the measure used to determine liability to the charge ignores factors such as whether the household has only a single earner, housing costs or family size. This means families can be caught by the charge despite having very little disposable income. Alternatively, individuals who usually have a lower income may end up being liable to the charge because of a one-off event, such as taking money out of their pension. And as the charge can affect taxpayers whose only source of income is already fully taxed under PAYE, there is a significant lack of awareness among those affected. This has led to taxpayers receiving backdated assessments of unaffordable sums. In its Budget representation, LITRG also calls for the point at which child benefit is fully clawed back to increase from £60,000 to £75,000. This is to address the fact that larger families can face high effective marginal tax rates when they are liable to the charge. For example, where the charge applies to withdraw a child benefit claim for two children, the taxpayer must pay £60 in tax and National Insurance for an additional £100 earned between £50,000 and £60,000. For three children, the rate increases to £67 for an additional £100 earned.3 LITRG also argues that the existence of the charge can discourage people from claiming child benefit entirely. This can have consequences for the would-be claimant’s state pension record, as they potentially miss out on National Insurance credits. LITRG urges the Government to ensure that taxpayers do not miss out on these credits where child benefit is not claimed.4 Tom Henderson said: “The HICBC has been a controversial policy since its introduction. We urge the Government to carry out a review of the policy and address those areas where the charge is not meeting its original objectives.” |