Penalties for failing to declare child benefit on tax return plummets by 99% (2025)

The number of penalties issued to families caught out by the high-income child benefit charge (HICBC) has plummeted by 99 per cent, new data has revealed.

According to the figures obtained by Quilter via a freedom of information request to HMRC, in the 2023/24 tax year, just 75 penalties for failure to notify (FTN) were issued.

This is a penalty applied when a parent or carer does not inform the taxman they earn over the benefit income threshold – something they must notify HMRC of themselves or face a penalty.

In 2023/24, penalties were down from 7,007 the year before, and the total value of penalties charged fell from £4.5m to just £45,443.

So far, only 46 penalties have been issued in 2024/25, confirming the collapse is not a one-off, Quilter, a wealth management firm, said.

The news follows years of criticism that the rules were unfair, confusing, and disproportionately punitive.

The taxman itself has noted in their response to the data request that in recent years, it has focused efforts on continuing to raise awareness of the HICBC and supporting taxpayers in complying, which has contributed to the decline in penalties.

What is HICBC?

The high-income child benefit charge applies when an individual in a household earns over a certain income threshold, and someone in the household claims child benefit.

It claws back some or all of the benefit depending on income. Still, the system relies on the higher earner recognising this and notifying HMRC themselves – often triggering a requirement to complete a self-assessment tax return for the first time.

The policy has been heavily criticised for its reliance on individual income rather than household income, as it means that a single parent earning over the threshold can lose all their child benefit.

A couple, each earning just below the threshold, can retain the full amount despite having a higher overall household income.

After significant pressure, the previous Tory Government committed to reforming the system in the 2024 spring Budget, with plans to move to a household-based assessment by April 2026.

At the same time, the income threshold was increased for the first time since the policy was introduced – rising from £50,000 to £60,000. After this, the amount received starts to taper down.

Child benefits are withdrawn completely once the highest earner makes over £80,000.

Now, for example, a household with two parents each earning £59,000 – a total of £118,000 – will receive child benefit in full, but a home with a single parent earning £60,000 would see some or all of the benefit withdrawn.

Labour has said reform would be too costly to implement

Since taking office, Labour has rowed back on the commitment to move to a household-based assessment.

Despite acknowledging during the election campaign that the current system was unfair and penalised single-earner households, the party has since said that the proposed reform would be too costly to implement.

Treasury analysis has suggested it could cost around £1.4bn by 2029/30 if thresholds were raised to £120,000 to £160,000. As a result, the current system remains in place.

In the interim, the Government has pledged to reduce the administrative burden for families by allowing those affected to repay the charge via PAYE from the summer of this year rather than requiring them to complete a full self-assessment tax return.

Holly Tomlinson, financial planner at Quilter, said the collapse in these penalties reflects the pressure that has built up over years about how unfair the system was.

She said: “Huge media attention highlighted the absurdity of a single parent losing all their child benefit while a couple each earning just under the threshold could keep the lot.

“The Government has finally accepted this doesn’t pass the fairness test and is now using carrot rather than stick to help people keep to the rules.”

Families still need to tread carefully, experts warn

In the meantime, families still need to tread carefully, she warned.

Ms Tomlinson said those who opt out of receiving child benefit to avoid the charge, need to make sure the parent who is not working or earning less still gets their national insurance credits, which count towards the state pension.

Child benefit, which was introduced in 1977, replacing family allowance, is currently paid at a rate of £26.05 per week for the eldest or only child, and £17.25 per week for any additional children.

Ms Tomlinson added: “And for those hovering near the income threshold, salary sacrifice into a pension can be a wise financial planning tactic – it reduces your adjusted net income and can bring you back below the charge entirely.

“While Labour looks set to let the clear inequalities remain baked into the system, at least they are making it easier for people to pay back any additional child benefit they are not eligible for.”

An HMRC spokesperson said: “We have focused our efforts on raising awareness of the high income child benefit charge and supporting taxpayers to comply and this has resulted in a reduction of penalties being issued.”