The tax giveaway… again?

In what seemed somewhat like a moment of déjà vu, the Chancellor announced a further reduction to the rate of national insurance to add to that introduced at the Autumn Statement 2023.

With effect from 6 April 2024, the main rate of Class 1 national insurance paid by employees and Class 4 national insurance paid by the self-employed will be reduced by 2 percentage points, leading to a rate of 8% and 6% respectively.

The child benefit conundrum

The high-income child benefit charge was introduced back in January 2013 and has not changed since. The aim of this charge was to limit the availability of child benefit to ‘families’ which had a high income, but it was badly drafted from the start (some may say fundamentally flawed) and has led to a number of problems since.

In outline, it applies to individuals who earn more than £50,000 where they (or their partner) claim child benefit – in these cases, their claim for child benefit is reduced by 1% for every £100 earned over that threshold, so by the time their income reaches £60,000 they would suffer a charge equal to the child benefit claimed.

The current workings mean that a family with one parent earning £60,000 will get no child benefit, while another family where both parents earn £50,000 will have full entitlement to child benefit. Aside from this inequality, the increase in the rate of salary over the last 11 years with no movement in the threshold has led to more and more families being brought into this regime – many of which have had no awareness of this and have been caught out.

The changes announced today are twofold. First of all, the threshold where a family will fall within these rules has been increased from £50,000 to £60,000 and the abatement has been slowed to 1% for every £200 earned over that threshold, meaning that the full entitlement to child benefit will be lost only when their income reaches £80,000.

Secondly, in an attempt to correct the imbalance mentioned earlier, it was announced that the administration of this charge should move to be based on the income of the household rather than the individuals. In a tax system which focuses on individuals (rather than couples or households) it will be interesting to see how this develops and whether this has any wider implications going forward.

If you would like to discuss this in further detail, please get in touch with your usual contact or e-mail us at experts@tacs.co.uk.