Government set to ‘streamline’ process for collecting High Income Child Benefit charge, after thousands of families faced fines – Steve Webb, LCP

The Government has today announced plans to reform the way in which the High Income Child Benefit Charge is collected in a change designed to tackle the problem of large numbers of families facing fines for inadvertently not paying the Charge.

The High Income Child Benefit Charge (HICBC) was introduced in 2013 and means that where one person in a family receiving child benefit has an annual income in excess of £50,000, a charge is payable. The size of the charge is on a sliding scale of 1% of the child benefit amount for each £100 above the £50,000 threshold, up to a maximum of 100% of the child benefit amount for those on £60,000 per year or more.

A key problem with the system has arisen for parents with relatively simple financial affairs – such as simply having one job, taxed under PAYE – and who do not normally file a tax return. Where such a person sees their income rise above £50,000 (perhaps through a pay rise or bonus), they should, in principle, report this to HMRC through a self-assessment tax return in order to be assessed for the charge. If they fail to do this, they may face a penalty as well as having to pay the charge. In some cases, families may have inadvertently gone several years without paying, only to face large bills for unpaid HICBC plus charges. According to official figures, HMRC has issued over 150,000 fines for non-compliance in respect of years up to 2019/20 (see notes to editors).

Today, in a written Parliamentary Statement, the Financial Secretary to the Treasury, Victoria Atkins MP, has said:

• The government wants to simplify the process for customers who become liable for the High Income Child Benefit Charge, particularly for those who currently need to register for Self Assessment to pay the charge. The government will provide details in due course on how it will enable employed customers to pay through their tax code without the need to register for Self Assessment.

Although details are yet to be published, the Minister’s statement suggests that where an individual earns above £50,000, it will be possible to adjust their tax code in order to collect any HICBC due without the need to complete a tax return. This process would presumably largely eliminate cases where people inadvertently fail to pay the charge.

Commenting, Steve Webb, partner at LCP, said:

“One of the many flaws of the High Income Child Benefit Charge is the way it has caught thousands of families unawares. Parents with simple tax affairs who would not normally have to fill in a tax return have needed to do so once their annual income exceeded £50,000, perhaps because of a pay rise or bonus. Those who have failed to do so, often simply through a lack of awareness of the system, have had to pay the charges and have also faced fines. After more than a decade of operating the charge, the Government has finally recognised that this system is not working. The news of plans to make collecting this charge more automatic is welcome – just ten years too late”.