45,000 families at risk of building up tax arrears because of child benefit filing errors warns BDO

45,000 families at risk of building up tax arrears because of child benefit filing errors warns BDO

At least 45,000 families could be at risk of building up tax arrears by not knowing they have to declare and pay the High Income Child Benefit Charge (HICBC), accountancy and business advisory firm BDO has warned.

A recent FOI response published by HMRC shows that prior to the pandemic in  2019-20, HMRC carried out 61,881 compliance checks on taxpayers who should have, but did not register for Self Assessment to pay the charge.

However, because compliance checks were scaled back during the pandemic, this dropped to just 15,434 in 2021-22. This could mean there are at least 45,000 families who are accumulating tax debts without realising it.

Introduced in 2013, the HICBC is a tax charge that applies to anyone with an income over £50,000 who either gets Child Benefit themselves, or whose partner claims it.

The charge increases gradually for taxpayers with incomes from £50,000 up to £60,000, the point at which all child benefit payments are recovered.

Individuals who need to pay the charge must file a Self Assessment tax return, even if they normally pay their tax through Pay As You Earn (PAYE).

Taxpayers who don’t file correctly and pay the charge on time face repaying the full amount of the charge plus interest, in addition to any penalties imposed. Since 2013, almost 170,000 taxpayers have received penalties relating to the HICBC.

Paul Falvey, BDO tax partner said:

“The latest figures suggest there may be 45,000 families who are liable to pay the High Income Child Benefit Charge but who are failing to file a tax return and pay what’s due.

“Clearly there are many parents who are simply unaware of their obligation to fill in a tax return and pay the charge just because the salary of one partner exceeds the £50K threshold. However, ignorance isn’t a defence when it comes to paying tax and many people may get a nasty shock when HMRC does eventually come calling.

“The £50K threshold for “high income” hasn’t changed since the charge was introduced in 2013 and rising inflation is pulling many more people who regard themselves as middle earners above the limit. HMRC urgently needs to focus its efforts on raising awareness of the charge, particularly among those who tip over the threshold for the first time. For example, it could use PAYE records to automatically notify anyone going over the threshold, even in cases where it can’t be sure whether the individual or his or her partner claims child benefit.

“In truth, the High Income Child Benefit Charge has been confusing and anomalous since the start. Much of this confusion arises as it’s often the person who’s not receiving the benefit who needs to file a tax return to pay the charge. Many people would accept that means testing the benefit is fine, but only if it can be done fairly and clearly. Currently, it is very hard to justify why a couple earning £45,000 each - or £90,000 jointly - can claim full child benefit payments, while a couple with just one earner on, say, £61,000 gets absolutely nothing. This is just one example which underlines why our tax system is in urgent need of modernisation.”

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