Parents successfully appeal £1,383 High Income Child Benefit Charge

More working families are being dragged into the scope of the High Income Child Benefit Tax Charge, but many only know of it once faced with a sizeable tax bill.

Parents of an eight-year-old have however successfully appealed against a £1,383 Child Benefit Tax Charge after a judge ruled it was “objectively reasonable” that they were unaware of the rules, due to not being notified.

Child Benefit is worth £24 a week for an eldest or only child and £15.90 a week for each eligible subsequent child. However, as of 2013, this Child Benefit stopped being paid universally and instead, a £50,000 threshold rule was introduced.

The threshold rule means that if a parent or their partner has an adjusted net income exceeding £50,000, they have to pay some of the benefit back through a tax return.

Myron Jobson, senior personal finance analyst at interactive investor previously said: “The rule also bafflingly leaves Child Benefit payments out of reach if just one parent earns above the £50,000 threshold, but does not apply if both parents earn just below the threshold – or if one partner doesn’t work at all.”

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Once parents collectively earn £60,000 or more, they are no longer entitled to Child Benefit. They will, however, still receive the payments so they have to opt-out or pay it all back.

In December 2014, Toby and Eva Hextall had a daughter when both of their incomes were below the £50,000 threshold. In the 2015/16 tax year, Mr Hextall’s salary increased above the threshold and the following year, was above £60,000.

However, the couple continued getting the Child Benefit until they received a prompt from HMRC in 2019 to check if they were still entitled to it. After checking, they opted out of the payments.

HMRC then started investigating them in May 2021 and issued a repayment demand for the 2015/16 to 2017/18 tax years of £2,495 Child Benefit, as well as interest.

The Hextalls appealed against the demand at a tax tribunal on the basis that they had not been made aware of the threshold change. According to the Times, the couple argued that the Government’s marketing campaign in 2012 and 2013 had not registered with them because they were not parents at the time.

They also did not register the Government leaflets about the High Income Child Benefit Charge given out when their daughter was born because they did not earn more than £50,000 at the time. They also said that they received no further communication from HMRC when their salaries increased.

In response, the judge of the tribunal ruled in the couple’s favour, concluding it was “objectively reasonable” for Mr Hextall to have been unaware that he was required to inform HMRC that he had become liable to the High Income Charge.

According to the Times, Judge Greg Sinfield said: “In essence, Mr Hextall seeks to rely on ‘ignorance of the law’ as a reasonable excuse.

“Taking into account the lack of guidance in the Child Benefit claim form for those in Mr and Mrs Hextall’s position and the absence of any subsequent communications, either by way of a general campaign aimed at those in their position or direct correspondence, we have concluded that it was objectively reasonable, in the circumstances of the case, for Mr Hextall to have been unaware of the requirement to notify HMRC that he had become liable to the High Income Child Benefit charge.”

The judge did, however, allow HMRC to claim back £1,076 for the 2017/18 tax year, which falls within HMRC’s rule that if a person has a “reasonable excuse” for not paying on time, it can demand payments dating back four years. But the judge did not allow the tax authority to demand payment for the two previous years.

HMRC told the Times: “We are considering the tribunal’s judgement but the ruling does not affect any taxpayer’s liability to repay benefit.”

There are ways for parents earning £50,000 and over who haven’t opted out to also avoid or lessen the charge, and this includes topping up their pension, according to Mr Jobson.

He said: “Our calculations show that a parent earning £53,000 paying five percent (the minimum employee pension contribution under automatic enrolment rules) of their income (£2,650) into their workplace pension could contribute an additional £350 to their pension to bring their taxable income down to £50,000 (£2,650 minus £350).

“In this scenario, parents with two children could potentially save a total of £566 in Child Benefit, with a net cost of top-up pension contributions of £198 (pension contribution £350, tax saved £86, child benefit saved £66). When factoring the pension tax relief and the Child Benefit savings, the pension contribution is effectively boosted by 77 percent.”

He also highlighted the impact that not claiming Child Benefit can have on entitlement to contributory benefits.

Mr Jobson said: “The decrease in families claiming Child Benefit and the uptick in those opting out to receiving payments raises concerns that parents are unwittingly missing out on valuable National Insurance credits which could bolster their state pension in future.

“Even if you don’t think you qualify because either you or your partner earns over the £50,000 High Income Child Benefit charge threshold – it’s still worth claiming.

“This is so you don’t miss out on National Insurance credits, which build qualifying years towards the state pension. If your income is over £60,000, the HICBC charge will be equal to the full amount of your Child Benefit, so you are no better off for receiving the benefit. You can always opt not to receive the payments and avoid the tax charge – but still get the National Insurance credits.

“Crucially, you’d need to fill in the child benefit claim form, and state that you do not want to get payments.”