Big change to child benefit could help thousands of parents avoid HMRC fines | Family finances

Thousands of parents could be freed up from the chore of having to fill in a self-assessment tax form after the government announced changes to a tax charge that affects higher earners.

Ministers have said that in future, those in work who are affected by the “high income child benefit charge” – which affects people earning more than £50,000 a year and their partners – will not have to register for self-assessment in order to pay what they owe.

Instead, the money will be clawed back via people’s PAYE tax codes, which experts said should tackle the problem of families being hit with fines for inadvertently not paying the charge.

The high income child benefit charge has been controversial since it was introduced in 2013, and Steve Webb, the former pensions minister, said the move to simplify the rules “is welcome – just 10 years too late”.

Child benefit is not means-tested, and the charge is the government’s way of reducing the amount that is paid to higher earners. It means some of the state payment is clawed back via the tax system where a parent earns more than £50,000.

Dubbed by some as a “tax on children”, the charge has resulted in large numbers of parents repaying some or all of the benefit, which is paid at £24 a week for the eldest or only child, then £15.90 a week for each additional child.

About 373,000 individuals were hit with the charge in 2019-20, and it raised £416m for the government’s coffers that year alone. However, as of August 2020, more than 620,000 families had opted out of receiving child benefit in order to avoid being hit by the charge.

One reason it is controversial is that, as the Association of Taxation Technicians explained, a combination of frozen tax thresholds and wages rising with inflation have dragged more parents into the charge’s net. The investment firm Quilter said that if the £50,000 threshold had been increased in line with inflation, it would be above £65,000 today.

The charge is 1% of the amount of child benefit for each £100 of income on a sliding scale between £50,000 and £60,000. For those earning more than £60,000 the charge is 100% – in effect, they receive no child benefit.

In a statement, the government said it wanted to “simplify” the process, and would provide details later on how it would enable employed people affected by the child benefit tax charge to pay it through their tax code, without the need to register for self-assessment.

Sarah Coles, the head of personal finance at the investment platform Hargreaves Lansdown, said this meant parents earning just over £50,000 “won’t need to go through the pointless rigmarole of registering for self-assessment, purely in order to repay a chunk of child benefit”.

Webb, now a partner at the actuarial business 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 … Those who have failed to do so, often simply through lack of awareness of the system, have had to pay the charges and have also faced fines.”