OTS evaluation paper on the High Income Child Benefit Charge
OTS publishes an update on aspects of its recent Life Events report.
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The OTS has published an evaluation update paper on the High Income Child Benefit Charge (HICBC) and its wider implications.
This 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 recognises the impact that the COVID-19 pandemic has had on all government work streams, and the necessary diversion of HMRC effort that has been needed. Nevertheless, 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:
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the language used is confusing, as one is required to make a ‘claim’ to child benefit even when opting out of receiving the payments
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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
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allowing those who didn’t claim child benefit to receive national insurance credits to which they are eligible
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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
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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).
For the future, it would be helpful if child benefit and the HICBC could be included in the Single Customer Account.
Notes for editors
The OTS is the independent adviser to government on tax simplification, challenging tax complexity to help all users of the tax system; it does not implement changes - these are a matter for government and for Parliament.
The OTS works to improve the experience of all who interact with the tax system. It aims to reduce the administrative burden - which is what people encounter in practice - as well as simplifying the rules. Simplification of the technical and administrative aspects of tax are each important, both to taxpayers and HMRC.
The OTS has previously published an evaluation update on its 2017 VAT review in October 2019, an evaluation and stocktake note on its 2017 Corporation Tax review and 2018 Accounting depreciation or capital allowances review in July 2020 and an evaluation paper on its 2018 review on HMRC Guidance in March 2021.
An index of all OTS publications is also available.
Press Enquiries only please contact Julie Gillespie, OTS Press Officer Phone 03000 585028.