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Basic rate taxpayers may be hit with Child Benefit clawback from April 2021

Basic rate taxpayers will be caught by Higher Income Child Benefit Charges from April, warns Robert Salter.

This is because the Higher Income Child Benefit Charges (HICBC) is presently due to apply on earnings of £50,000 per annum, while the basic rate tax band is due to increase to £50,270 from April.

This increases the historical criticisms of the HICBC and reinforces the fact it is simply not fit for purpose. It is confusing, badly designed and taxes many people who are simply not, by any definition of the word, well-off or wealthy.

The HICBC has always been controversial:

  • It undermines the principle of independent taxation – a long-time core principle within the UK tax system, as child benefit is typically claimed by one partner, while it is often the other partner who (if they earn over £50,000 per annum) is then subject to the clawback by the HICBC.
  • It blocks up the Self-Assessment tax return system with ‘unnecessary tax returns’ – creating additional costs for HM Revenue & Customs (HMRC) and potentially taking their focus away from more important areas of taxation.
  • It is complex and taxpayers (particularly the self-employed or those whose income can vary significantly on a year-to-year basis), often won’t know in advance whether they will be caught by the HICBC or not, on a year-to-year basis.
  • It can readily create effective tax rates for those impacted by HICBC of 70% or more (it depends, in practice on the number of children a family may have).
  • It taxes families on an inconsistent basis – that is, because a family with just one (higher) earner can be subject to the HICBC, whilst their dual-income neighbours with a much higher combined income can avoid the HICBC totally.

However, despite these numerous criticisms – and the fact that the starting threshold for the HICBC will change to £50,000 – the Government has left the system unaltered since it was introduced in 2013.

For a Government which officially wants to support families and the ‘squeezed middle’ it is simply not defendable or fair to continue with this system.

It is clear that the Government’s finances are under pressure, but this is no excuse to leave an unjust system as it is.

Instead, the need to potentially raise taxes should be taken as an opportunity for the Government to review the HICBC (and the wider tax system) in detail and ensure that the system is modernised. This will ensure that families are supported, and the tax burden is shared equitably across the entire population.

Would you like to know more?

If you would like to discuss any of the above guidance, please get in touch using the contact details to the right or through your usual Blick Rothenberg contact.

For any press queries, please contact David Barzilay whose details are to the right.