Big change to child benefit could help thousands of parents avoid fines from HMRC

Thousands of parents could be relieved of having to fill out a tax self-assessment form after the government announced changes to a tax charge that affects higher income 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 to be able to pay. what they owe

Instead, the money will be recovered through individuals’ PAYE tax codes, which experts say should address the problem of families getting fined for inadvertently failing to pay the fee.

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

The child benefit is not means-tested and the fee is the government’s way of reducing the amount paid to higher earners. It means that part of the state payment is recovered through the tax system when a parent earns more than £50,000.

Dubbed by some a “child tax”, the charge has resulted in large numbers of parents paying part 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.

Around 373,000 people were indicted on charges in 2019-20, and in that year alone it raised £416m for government coffers. However, as of August 2020, more than 620,000 families had opted out of child benefit in order to avoid being hit by the charge.

One reason it’s controversial is that, as the Association of Tax Technicians explained, a combination of frozen tax thresholds and wages that rise with inflation have drawn more parents into the office net. Investment firm Quilter said that if the £50,000 threshold had been raised in line with inflation, it would be above £65,000 today.

The charge is 1% of the child benefit amount for every £100 of earnings on a sliding scale between £50,000 and £60,000. For those who earn more than £60,000 the charge is 100%; in fact, they receive no child benefit at all.

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

Sarah Coles, head of personal finance at investment platform Hargreaves Lansdown, said this means parents making just over £50,000 “won’t have to go through the pointless nonsense of signing up for self-assessment, simply to pay part of it.” child benefit.”

Webb, now a partner at actuarial firm LCP, said: “One of the many flaws with the high-income child benefit charge is the way it has taken thousands of families by surprise. Parents with simple tax concerns who would not normally have to complete a tax return have had to do so once their annual income exceeded £50,000… Those who have not, often simply due to lack of knowledge of the system They have had to. pay the charges and have also faced fines.”

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