Higher Income Child Benefit Charge – What you need to know

One of the things that everybody needs to be aware of is the High-Income Child Benefit Charge (HICBC).

For some, who have seen income rise over recent years and are now earning more than £50,000 and are receiving child benefit, they may not be fully aware of the obligations which they now must meet.

You may have to pay a tax charge if you have an individual income of over £50,000 per annum and either;

  • you or your partner receive Child Benefit, or
  • someone else gets Child Benefit for a child living with you and they contribute at least an equal amount towards the child’s upkeep.

Income in this instance is classed as total taxable income from employments including any benefits together with any profits from self-employment, any interest and dividends received gross and any pension income received gross less any pension contributions and gift aid payments. 

HM Revenue and Customs defines a ‘partner’ as a person you are married to and living with or a person you are living with as if you are married.  Therefore, it doesn’t matter if the child living with you is not your own child.

The HICBC is charged at the rate of 1% of the full child benefit award for each £100 of income between £50,000 and £60,000.  For taxpayers with income above £60,000, the amount of the charge will equal the amount of child benefit received.

If the HICBC does apply, the parent with the highest income (if both exceed £50,000) will need to declare the amount of the Child Benefit received on a Self-Assessment tax return.

It may be the case that individuals who have never completed a Self-Assessment tax return before will need to register for Self-Assessment with HM Revenue and Customs to be able submit a tax return on an annual basis. 

The charge itself is collected through the self-assessment and Pay As You Earn system.  This means that the the amount owed will either have to be paid to HM Revenue and Customs by the appropriate deadline or may be able to be collected from the individual’s earnings by adjusting their PAYE tax code.

We have seen an increasing number of cases where HM Revenue and Customs are issuing tax assessment to individuals to either collect child benefit claimed in error or the tax which has not been paid.  Over a couple of years, these amounts can add up to a significant amount.

It is an individual’s responsibility to report to HM Revenue and Customs that they are subject to the HICBC and that they must submit a Self-Assessment tax return.  If an individual fails to submit a tax return or pay the appropriate tax to HM Revenue and Customs before their respective due dates, the individual will be subject to fines and penalties.

You can of course choose not to receive Child Benefit payments, but an individual should still complete the necessary claim forms as this will help an individual receive National Insurance credits which count towards State Pension and other contributory benefits such as bereavement benefits.  In addition, it will ensure that your child is registered to receive a National Insurance number when they are 16 years old.

If you continue to receive Child Benefit payments, there are some options open to you whether you are a limited company director or an employee to reduce what is treated as your income for the year so that your income remains below the threshold.  These measures obviously depend upon your personal circumstances so would need to be discussed with an individual in more detail.

The HICBC rules can be complex and for many can seem unfair. For example, in a family where both parents work and both earn just less than £50,000 per annum yet keep the full child benefit whereas a family where one parent works and earns more than £50,000 yet must pay the necessary charge.

If you are earnings are above £50,000, you are receiving Child Benefit payments and are not submitting a Self-Assessment tax return, you need to act now to avoid possible penalties and fines being issued by HM Revenue and Customs.

If you would like any additional information or would like to discuss your tax affairs in general, please do not hesitate to contact us on 0161 952 4244