Review your high income child benefit charge position now

15 April 2021

The high income child benefit charge (HICBC) was introduced in 2013. At the time, despite publicity, a number people it impacted did not realise they were affected. The new charge also drew many people into the self-assessment system, who had not previously been required to submit tax returns.

Since then people’s circumstances may have changed as they have either had children or their income has increased beyond the £50,000 threshold. It is therefore appropriate to highlight this charge once again.

Who is liable?

Where an individual is in receipt of child benefit, the charge is collected through self-assessment from the highest earning of the recipient or their partner (the relevant individual), where at least one of them earns over £50,000. In the forthcoming tax year, the personal allowance plus basic rate tax band will total £50,270 so, for the first time, basic rate taxpayers will fall into the HICBC.

Unlike most areas of tax that relate to couples, the individuals concerned do not need to be married or civil partners, as cohabitees and estranged married couples and civil partners may also be caught. 

Rate of tax charge 

The HICBC claws back 1 per cent of the child benefit received for every £100 of income received by the relevant individual over £50,000. Therefore, for a relevant individual with income of £51,000, 10 per cent of the child benefit received will be clawed back. In 2020/21, for a person with two children, the total child benefit receivable is £1,855, with £185 therefore clawed back at that income level.

Essentially, in 2020/21, this means that the excess £1,000 of income suffers higher rate tax at 40 per cent of £400, plus £185, giving a total tax cost for that £1,000 of £585 – a 58.5 per cent marginal tax rate. More children would increase the claw back and hence the marginal tax rate.

Claiming your rights

Some taxpayers have chosen to avoid the HICBC by not claiming child benefit. This, however, can potentially cause problems for future pension entitlements. To maintain rights without getting caught up in self-assessment it is necessary to establish the right to claim but ask not to be paid the benefit./p>

Actions

If you believe you have failed to declare liability for the HICBC, HMRC should be notified to regularise your tax position as soon as possible. It will be a much easier issue to deal with if you report the error than if HMRC finds it. Ideally you should contact your tax adviser now to help resolve the matter.

If you have not claimed HICBC where you are entitled, but do not wish to receive it, it is advisable to contact the Child Benefits Office to establish your right to the benefit, and your wish not to be paid it.

For more information please get in touch with Sarah Saunders.