Tax adviser MP calls for child benefit charge penalty suspension to be extended

6 Sep 2019

South Thanet MP Craig Mackinlay led a Westminster Hall debate on Tuesday 3 September, calling for an extension of the penalty suspension to those people impacted by the withdrawal of child benefit for higher earners.

In extensive opening remarks contextualising the development of the policy by the 2010-2015 Conservative-Liberal Democrat coalition, Mackinlay (who is a chartered tax adviser) noted that the high-income child benefit charge was ‚ a fairly obscure area of tax and benefits‚ .

A common theme across his remarks was the use of the tax system for withdrawing universal benefits. The problems faced with Child Benefit, he argued, provided a salutary lesson in ‚ how never to use the tax system to withdraw benefits‚ .

He set out some of the anomalies of the policy ‚ which reduces child benefit payments by 1 per cent for every £100 of income above £50,000 ‚ and which he argued highlighted the ‚ inherent unfairness‚ of the system.

Mackinlay expressed concern that the charge was not linked to overall family income, the measure for most Department for Work and Pensions (DWP) benefits. He gave the example of a couple each earning £50,000 (£100,000 total) being exempt from the benefit clawback, while a couple with only one earner (earning £60,000) being eligible for the full claw back.

He also noted the impact of ‚ fiscal drag‚ on the number of families opting-out of child benefit payments. Because the level at which payments are clawed back has not increased since 2013, the number of ‚ opt-outs‚ has increased from 397,000 to 516,000.

The application of the charge had a particular impact on the simplicity of the tax system, with families choosing to accept the payment to maintain cash flow and pay monies owed at the end of the year. Mackinlay said this had exposed many more people to self-assessment ‚ at huge bureaucratic cost to taxpayers‚ .

Information sharing between HMRC and DWP was also a concern. This could have helped identify those taxpayers who would face the charge. Demands for payback have included a 15 per cent penalty and statutory interest of 3.4 per cent, although extra-statutory concession A19 makes HMRC give up that tax if it has been in receipt of information but has not used it properly.

Mackinlay stated that the ‚ innovative obtuseness‚ of HMRC had proven a challenge in his efforts to raise these issues on behalf of constituents. But he cited figures showing that of 35,000 cases involving failure to notify, HMRC had rescinded demands for repayments in 6,000 of these, the result of pressure from groups such as Mumsnet, and the Daily Mail.

He noted that HMRC had identified two events for which penalties could be refunded: ‚ The first is for when income has increased from below £50,000 to above £50,000 since the start of the high-income child benefit tax regime, and the second is for when a taxpayer has started a new relationship, since the introduction of the charge, with a new partner who is in receipt of child benefit. Those are the two cases for which HMRC has given in and agreed to the suspension of penalties, and that is to be very much applauded.‚

However he thought the suspension should be extended. ‚ I would like to extend the penalty suspension to all, because I think HMRC has been rather obtuse about this one. If people start to do the right thing, past penalties should be suspended and, if they do the right thing for the following two years, those penalties should disappear.‚

Mackinlay was concerned about people not claiming child benefit and thereby not building up a national insurance record. ‚ We are potentially building up a problem of people‚ let us be frank, it is probably predominantly women‚ who will find in the future that they do not have the national insurance record that they thought they had.‚

He suggested that the policy ‚ completely blows away the independent status of taxation for couples‚ and argued that ‚ as with the case of the Women Against State Pension Inequality (WASPI) campaign ‚ the government was storing up problems for the future by failing to address the challenges in the system.

DUP MP Jim Shannon said that the issue was one of concern to many of his constituents and that the problems identified by Mackinlay had penalised those trying to play by the rules and provide a future for their children.

Alison Thewliss, for the SNP, said the issues highlighted the disconnect between the intention and the reality of government policy and had reinforced gender inequality within the benefits system.

She added to Mackinlay‚ s concerns about the erosion of the independence of individuals in the tax system by highlighting concerns around Universal Credit, which also treated households as a unit rather than as individuals.

She voiced concern at the complexity of the process for applying for child benefit and called on the Treasury to look again at the forms and processes to make it simpler for families to supply HMRC with the correct information. In a nod to the WASPI campaign highlighted by Mackinlay, she too voiced fears that government was storing up problems for future generations of (especially) women.

Thewliss cited her own experiences with the child benefit system upon being elected as an MP, when she cancelled the payments she had received while on a lower income. She said; ‚ If MPs are led to panic, what chance does anyone else have?‚

Shadow Financial Secretary Anneliese Dodds stated that Labour did not support the removal of the universality of child benefit. She acknowledged the practical impacts of the policy, citing figures from the Institute for Fiscal Studies showing that 370,000 more families will lose child benefit in 2019-20 than in 2013-14, the result of fiscal drag.

She sought information from the government on the steps it could take to advise people who could be entitled to a refund of child benefit payments wrongly recouped and was critical of the failure of HMRC and DWP to share information effectively, describing the lack of coordination as ‚ an issue that needs to be dealt with‚ .

Dodds also said that the impact of the high-income child benefit charge had increased the complexity of an already overstretched HMRC that, under the present government, had ‚ been cut more than any other European nation‚ s tax department aside from that of Greece‚ .

She sought reassurances over the impact of the charge on sole earners and the disproportionate impact of the policy on women.

Responding for the government, Financial Secretary to the Treasury Jesse Norman said that clawing back benefit from high earners was deemed appropriate when the policy was first introduced in 2013.

He acknowledged Craig Mackinlay‚ s concerns that the charge did not take into account overall household incomes but explained that this was due to the charge being levied as a tax that takes into account the principles of individual taxation. He acknowledged the difficulties with this, but stated that it was the right approach as to calculate the charge based on household incomes would have introduced a new means test, creating a substantial administrative burden on both the state and families.

Norman defended HMRC‚ s communications with taxpayers on the introduction of the charge, challenged concerns related to its impact on the self-assessment process and disagreed that the policy had a disproportionate impact on women.

In concluding remarks, the Financial Secretary acknowledged the impact of fiscal drag, but disputed Anneliese Dodds‚ suggestions that the charge had ended the universality of child benefits, his argument being ‚ it merely allows for a charge against it‚ .

The full debate can be read here and a video recording of the debate viewed via this link (from 18:11:26).