Child Benefit is ridiculously over-complicated

First published on 17 January 2022 by Alastair
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The famous cartoonist, Heath Robinson, specialised in cartoons of whimsically elaborate machines to achieve simple objectives. His name lives on in the expression ‘Heath Robinson,’ to describe anything that is ingeniously or ridiculously over-complicated in design or construction.  It applies, in spades, to some of the ridiculous rules that surround child benefit which, in turn, create additional and unnecessary work for thousands of people.

Firstly, it’s important to state that for those who need it, child benefit is a good thing, being worth around £1,800 a year to a family with two children.  However, its value starts to fall when the higher-earning parent earns more than £50,000 - and it disappears entirely when they earn £60,000. 

That’s fine, but… those high earners who do not qualify still have to apply for the benefit to prevent gaps in their National Insurance records, which could subsequently reduce the amount of state pension they receive.  The farce here is that having applied for the benefit, they then have to pay the cash back via self-assessment.

In other words, hundreds of thousands of people are filling in tax returns to hand back money they were not eligible to receive in the first place. At a time when HMRC’s resources are stretched because of COVID, this is ridiculous waste of everyone’s time.

For those who earn more than £60K, the solution is to look on page seven of the relevant form and then to tick the box that says, “I do not want to be paid child bene­fit, but I want to protect my state pension”.  Unfortunately, this option does not help people whose income fluctuates between £50,000 and £60,000. Moreover, some 373,000 taxpayers in 2019-20 misunderstand the form and claimed a benefit they then had to pay back. That figure is likely to be higher today as more families fall foul of the clawback. When “High Income Child Benefit Tax Charge” was introduced in 2013, one in eight families lost some or all of the payout.

With the limit having been frozen since launch, one in five families, or 1.6 million, are now ineligible for the full amount. That’s 600,000 people who have lost the benefit in less than 10 years.

At least in 2013 there was some truth to government’s claim that the £50,000 cap targeted wealthier families (at that time the higher rate of tax began at £41,451). Today, it starts at £50,271, so 60,000 basic-rate taxpayers must pay the high-income charge. Furthermore, this will double next year. If you are unsure of where you stand, get in touch and we’ll make sure you don’t get caught out.

Vivian Linstrom, M&S Accountancy & Taxation

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