I’m a great believer that where we have a tax regime demanding self assessment (clue in the title – the onus is on us to report income to assess how much tax we pay) then TAX SHOULD BE SIMPLE.
The Tax Rules should be something that each and every tax payer in the UK can understand.
However there are a number of things that make the tax system unnecessarily complex.
Here’s just two examples of this which do impact many tax payers:
High Income Child Benefit Charge (HICBC)
The High Income Child Benefit Tax Charge was introduced back in 2013 to curb those earning high incomes from gaining from Child Benefit. Since that time additional tax may be due if you have an income in excess of £50,000 and either:
- you or your partner get Child Benefit
- someone else gets Child Benefit for a child living with you and they contribute at least an equal amount towards the child’s upkeep
The tax payer is expected to work out their annual ‘adjusted net income’.
If you find yourself caught within the charge you can decide not to receive the Child Benefit or pay additional tax which is 1% of the Child Benefit for every £100 earned over £50,000. If you earn over £60,000 then you pay back all of the Child Benefit.
All too often there’s reports in the Press of people being caught out by this and finding themselves with an unexpected tax bill to pay.
Well this Charge is full of pitfalls not least:
- Some don’t know how much their partner gets paid
- Pay can vary depending on bonuses, other income, gift aid etc.
- Job changes can push you into or out of this charge
- Relationships change and when this happens the last thing on your mind will be the High Income Child Benefit Tax Charge
- The Charge can be imposed on the person who may not be in receipt of the Child Benefit meaning that extra tax is paid because of monies received by someone else
Frankly whilst I can see the objective behind the introduction of the Charge this has resulted in an “unimplementable” regime fraught with issues resulting in tax payers not being able to easily self assess their tax situation.
Given this the High Income Child Benefit Tax Charge should be reviewed, revised and made a simpler system where it is much easier to self assess if a high income tax charge should be paid.
In its current guise the Marriage Allowance was introduced on 6th April 2015.
The Marriage Allowance enable someone to transfer £1,250 of their Personal Allowance to their husband, wife or civil partner. This can reduce their tax bill by £250.
To benefit from the Marriage Allowance all of the following conditions must apply:
- you’re married or in a civil partnership
- your income is below the personal allowance or you do not pay tax
- your partner pays income tax at the basic rate. The relief is not applicable if they pay higher rate tax. In Scotland your partner must be paying the starter, basic or intermediate rate
Your partner will receive the Marriage Allowance either by a change in their tax code or through their self assessment tax return. This transfer of allowance will automatically occur each year until one of you cancels it or your circumstances change e.g. through divorce or death.
You have four years in which to claim the marriage allowance. In reality this also means that you can back date your claim for four years resulting in a one off £1,000 tax saving by your partner, and £250 per year afterwards, if this applies to you.
Once again this is an Allowance that relies on open financial communication between partners. Not only this but income again needs to be assessed each year to ensure that a tax code change doesn’t become outdated resulting in additional tax due.
Accepting that the financial benefit of £250 per year can be significant for couples the administration involved in this Allowance seems to be disproportionate to the overall size of the benefit and the need for constant assessment of income or changes in circumstances.
Whilst I am in no doubt that those on lower incomes should receive tax breaks and those on higher incomes should have benefits curtailed, this does need to be delivered by systems that are easy to understand and cost effective in administration. The current regime for Marriage Allowance and High Income Child Benefit Tax Charge is far from both of those placing unnecessary burden on the tax payer as well as a disproportionate financial cost of implementation. And that just seems to be plain wrong to me!