High Income Child Benefit Charge

Individuals in UK are allowed to claim child benefit at a rate of £21.15 per week for a single child, or the eldest and £14 per week for younger siblings. The payment is usually made every 4 weeks albeit single parents or those receiving aid such as Income Support are eligible to receive child benefit on a weekly basis. There are no restrictions on the number of children the child benefit can be claimed for.

It can be claimed if the child is below 16 years or below 20 and in remains in approved training or education. Through child benefit, not only does the family member claiming it attain National Insurance Credits which counts towards their State Pension, but it also guarantees receipt of the child’s national insurance number by the time they become 16 years.

However, the convolution arises when either of the partners’ taxable income exceeds £50,000 since this makes them liable to pay what is known as a High Income Child Benefit Charge (HICBC) on the child benefit. If both partners earn over £50,000 then the partner earning the higher sum is responsible for declaring the child benefit being received and making the subsequent payment of HICBC.

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HMRC has a HICBC calculator which can enable families to understand the amount required to be paid. However, it is usually calculated as 1% of the child benefit received for every £100 earned over and above the tax-free threshold of £50,000. Thus, whilst the maximum child benefit claimable in a single year for a solitary child is £1100[52 weeks*£21.15 per week], once an individual earns £60,000 a year, the entirety of the child benefit is lost in tax. This is calculated based on 1%*1100=£11 per £100 over £50,000. So at an annual taxable income of £60,000, £10,000 over the threshold, HICBC is £1100[£11*100(10000/100)].

Partners can stop claiming the child benefit to avoid paying HICBC altogether, known by HMRC as “opting out” but may still have to fill in the Child Benefit claim form stating that they no longer wish to receive the same. For clarification purposes, taxable income is the amount before any personal allowances are deducted.

HMRC’s recent court case loss on this topic has ignited a debate over couples who have potentially been charged HICBC unfairly to the tune of thousands of pounds with some even claiming payments being made of up to £10,000. HMRC levied a power known as the “discovery assessment” to fine the couple £4000 for tax years dating back to 2014-17. However, a cogent argument made by the couple that the assessment was only applicable to investigate discrepancies or issues relating to income rather than a charge, which is the nature of HICBC, led to the couple succeeding in defending their position at the Upper Tribunal. This ruling has set the precedent that discovery assessments are prohibited from being used to enforce payments of HICBC and if others have been made to pay the HICBC based on the discovery assessment then they could be entitled to ask HMRC for a refund.

For the latest tax advice and accounting support, call or book a meeting with Cheylesmore Accountants to steer clear of fines and penalties whilst having an up-to-date team of accountants handle all your business affairs promptly and in an efficient manner. This allows you to focus more on what matters more to you, whether this is developing your business or achieving a better work-life balance.