Shaun Moore, tax and financial planning expert at Quilter comments on the latest HMRC income tax statistics:
“HMRC’s latest income tax statistics reaffirm the need to amend the threshold from which the high income child benefit (HICB) charge comes into effect, removing basic rate taxpayers from getting caught by the charge during the cost of living crisis.
“Child benefit is not means tested and if one earner in a family makes more than £50,000 a year, they must pay back 1% of the Child Benefit they receive for every £100 over the threshold. However, a basic rate taxpayer can earn £50,270 before falling into the higher rate band, meaning basic rate taxpayers are currently in scope for a tax charge aimed at higher earners.
“The HICB threshold has not been moved since it was introduced, and given this morning’s HMRC data, it is clear that the government will be making a pretty penny as a result. With wages rising, the number of people impacted by the threshold will have grown. The latest HMRC figures show there are now a projected 27.2 million basic rate taxpayers in the 2022-23 tax year, a 2.1% uptick compared to 2019-20, meaning even more people could end up caught in the net.
“Not only will the government be gaining from the increase in basic rate taxpayers, but the number of higher rate taxpayers has also grown dramatically. There are now a projected 5.5 million higher rate taxpayers in the 2022-23 tax year, making up a considerable 16.2% of the overall income tax paying population – a substantial 43.9% increase compared to 2019-20. What’s more, there are also now a projected 629,000 additional rate taxpayers in the 2022-23 tax year, up 49.4% compared to 2019-20.
“With the population in the midst of a cost-of-living crisis, it is somewhat perverse that basic rate taxpayers are being caught out by a charge that is not designed for them. The government has failed to increase the HICB charge in line with income tax thresholds and as such they are now greatly benefitting from a quirk in the system that is potentially catching a lot of people out.
“Given the cost-of-living crisis is hitting lower and middle income households, the government could provide some quick relief by simply raising the HICB threshold to £50,271 – the rate at which someone becomes a higher rate taxpayer. The UK tax system is already complicated at the best of times. Failing to have the HICB charge aligned with income tax bands just makes things even more complex and will catch a lot of people unaware.”