OTS update on work on the High-Income Child Benefit Charge

The Office of Tax Simplification (OTS) has released an evaluation note, ‘Update on OTS work on the High-Income Child Benefit Charge and its wider implications’. It details HMRC’s progress with the recommendations made by the OTS in the October 2019 'Life Events' review and further recommendations to HMRC.

The 2019 review looked at experiences relating to claiming Child Benefit and paying the High-Income Child Benefit Charge (HICBC). The review recommended that the government should:

• Review the administrative arrangements linked to the operation of Child Benefit, making clear the consequences of not claiming the benefit to ensure that people cannot lose out on national insurance entitlements.
• Consider the potential for enabling national insurance credits to be restored to those people who have lost out through not claiming Child Benefit.
• Consider how to ease the process of enabling children of those who have not claimed Child Benefit to receive their National Insurance number.

The OTS reports that progress in implementing these recommendations has been limited.

• The claim form has been improved with a better explanation of the HICBC and HMRC is now conducting more research into people's attitudes to the HICBC.
• As announced at the October 2021 budget, the government has legislated in Finance Act 2022 to put beyond doubt that HMRC may use discovery assessments (including retrospectively) to recover tax charges including the HICBC.

The report notes that the HICBC raises over £1bn per year through a combination of the charge itself and taxpayers choosing to opt-out of receiving child benefit, but also notes that it is a hard tax to administer. According to the report, HMRC are currently enforcing the HICBC through data-matching techniques and this is proving successful in collecting tax.

The OTS suggests that HMRC should now consider reviewing:

• The language used on the form and guidance, which is confusing, and a requirement to make a ‘claim’ to child benefit even when opting out of receiving payments.
• The need to claim child benefit (even if you have opted out) so that the child can automatically receive their National Insurance number at 16.
• Allowing those who didn’t claim child benefit to receive national insurance credits to which they would have been eligible if they had claimed (this was previously suggested, see above, but no progress appears to have been made).
• Considering an alternative way to register a child such as using the birth register in a similar way to the ‘tell us once’ system used by the government and HMRC when someone dies.
• How HMRC can improve awareness of the charge, e.g. adding HICBC adverts to the personal tax account.
• Improving the guidance available to help people understand their responsibilities for reporting and paying the HICBC.
• Including child benefit and the HICBC in the Single Customer Account.

Useful guides on this topic

High-Income Child Benefit Charge 
What is the High-Income Child Benefit Charge? Who pays it? Can you appeal against an assessment? Are there any useful cases from the tax tribunals? 

Childcare: Tax-free
The government can contribute 25% to childcare costs through the Tax-Free Childcare scheme. Who is eligible for the scheme? How does it work? 

External links

OTS Evaluation note: Update on OTS work on the High-Income Child Benefit Charge and its wider implications 

Taxation and Life Events; Simplifying tax for individuals