I’ve done it – I’ve found Britain’s most farcical tax
Hundreds of thousands of families are filling in tax returns to pay back benefits they were not eligible to receive
HEAD OF PERSONAL FINANCE14 January 2022 • 5:00am
After my baby was born, the hospital handed me a stack of disorganised documents. Among the pile of papers was an eight-page form to claim child benefit, which had to be submitted within three months.This state handout is worth around £1,800 a year to a family with two children. Its value starts to fall when the higher-earning parent earns more than £50,000 and disappears entirely by £60,000.
High earners who do not qualify must still apply for the benefit to prevent holes in their National Insurance records, which could reduce the amount of state pension they eventually receive, and then pay the cash back via self-assessment.
Ridiculously, this means hundreds of thousands of people are filling in tax returns to hand back money they were not eligible to receive in the first place. This is a waste of their time and a terrible use of HMRC’s resources.
Luckily, given my job, I knew to tick the box tucked away on page seven that said “I do not want to be paid child benefit, but I want to protect my state pension”. This option does not help people whose income fluctuates between £50,000 and £60,000. And how many sleep-deprived parents would have misunderstood the form and claimed a benefit they would have to pay back?
I can answer that: 373,000 taxpayers declared a liability for the charge in 2019-20. That figure is likely to be higher today as more families fall foul of the clawback. When the snappily named “High Income Child Benefit Tax Charge” was introduced in 2013, one in eight families lost some or all of the payout.
As the limit has been frozen since launch, one in five families, or 1.6 million, are now ineligible for the full amount. That’s 600,000 people booted out of the benefit in less than a decade.
At least in 2013 there was truth to the claim that the £50,000 cap targeted wealthier families as the higher rate of tax began at £41,451. Now it starts at £50,271, so 60,000 basic-rate taxpayers must pay the high-income charge. This will double next year. What a farce.
Another perversity is that the means test limit is applied per taxpayer, not household. Two parents who earn £49,999 each, with a combined income of £99,998, pocket the full benefit. A family in which the breadwinner makes £60,000 and the other parent earns nothing loses the payout entirely.
This stings, as a single earner on £60,000 already pays more tax than a dual-income household on £30,000 each.
Child benefit needs three improvements: there should be a smarter way to calculate eligibility based on household finances; the earnings limit must keep pace with inflation; and parents who are not eligible should not receive the cash.
We have an entire public office dedicated to the single yet seemingly elusive pursuit of simplifying tax and yet hundreds of thousands of people are forced to fill in returns each year for no good reason.
The Institute for Fiscal Studies, a think tank, has called the tax charge a “nonsense” and said reducing benefits by stealth “can do nothing for trust in government”.
If the Government wants to regain the public’s trust after the "partygate" scandal – and alleviate some of the pain of the cost of living crisis – this would be a good place to start,
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