The High-Income Child Benefit Tax Charge

The High-Income Child Benefit Tax Charge (HICBC) is a tax charge that applies to anyone with an income of over £50,000 who gets child benefits, or whose partner gets it. The scheme was first introduced in January 2013.

Child benefits are a government payment, distributed to parents or guardians every 4 weeks to help support their children’s upbringing. You normally qualify for child benefits if you’re responsible for a child under 16 (or under 20 if they stay in approved education or training) and you live in the UK.

You’ll usually be responsible for a child if you live with them or you’re paying at least the same amount as Child Benefit (or the equivalent in kind) towards looking after them, for example on food, clothes or pocket money. If you’re eligible you will receive £21.15 a week for your first child and £14.00 a week for any other children in your care after that.

Here’s all you need to know on the High-Income Child Benefit Tax Charge and whether it applies to you or your household.

What Is The High Income Child Benefit Tax Charge and How Does It Work?

The HICBC is a tax charge conceived by the government which aims to retrieve child benefits where either you or your partner has an adjusted net income exceeding £50,000. The tax charge increases gradually for taxpayers with incomes between £50,000 and £60,000.

Adjusted net income is total taxable income minus certain tax reliefs, for example for: self-employed trading losses, gift aid charity donations and pension contributions. The HICBC is equal to 1% of a family’s child benefits for every £100 of income that is over £50,000 each year. If an individual’s income is over £60,000, the charge will equal the total amount of the Child Benefit.

Individuals who need to pay the charge must submit a Self-Assessment tax return each tax year, even if they are employed, and normally pay their tax through PAYE. You can work out if you are eligible for child benefits as well as what necessary charges you may be subjected to through the government’s dedicated Child Benefit Tax Calculator.

Who Does The High Income Child Benefit Tax Charge Affect?

Basically, the HICBC impacts any household where one of the parents or carers has an adjustable net income of over £50,000. A ‘couple’ for this purpose includes two people who are living together as if they are married or in a civil partnership, as well as those who are actually married or in a civil partnership (unless separated). This means that couples can effectively have a combined income of up to £100,000 and the charge will not apply, as long as neither of their individual incomes is over £50,000. This is because the charge applies to the higher-income partner in a couple, irrespective of the income of the other partner.

When your partner is subject to the HICBC, it could have the potential for a knock-on effect on the overall household. The HICBC would inevitably reduce the financial income in your household, which has often led to many families and households to not applying for child benefits.

Child benefit payments also have a few rewards which aren’t in the form of payments. For example, individuals who register for child benefits could be able to access National Insurance (NI) credits, which safeguards their state pension entitlement. Registering for child benefits also means that once the child in question turns 16 years old, they will automatically be allocated a National Insurance number and card.

Where an individual is currently receiving child benefits, they can either:

  • Carry on getting child benefit payments and pay any charge at the end of each tax year via their self-assessment return.
  • Opt out of receiving Child Benefit payments and not have to pay the tax charge.

It’s also worth noting, HMRC check taxpayer records each year and, where they hold all the relevant information, write to customers who may need to register for self-assessment to pay HICBC. Since the introduction of the HICBC, the number of compliance checks on child-benefit receivers who have not registered for self-assessment or who have returned the incorrect amount has gradually increased. As of 2019/2020 this rose to 61,881 (customers who have not registered for self-assessment) and 63,713 (customers who have returned the incorrect amount) respectively.

HMRC may charge penalties if customers fail to notify them of their liability to HICBC or send an inaccurate return which results in HICBC being unpaid.

Why Did The Government Introduce The High Income Child Benefit Tax Charge & What Needs To Improve?

Child benefits is estimated to account for 5% of the overall welfare spending budget set out by the government annually, which equates to approximately £12billion each year. Because of this, the government proposed to claw back some of that expenditure from higher earners in the 2012 Budget announcement. The measure was expected to affect around 1.2 million families, of whom 70% would be subject to the full charge, with savings at an estimated £1.5 billion.

The HICBC however has ultimately deterred some families from seeking child benefits. An IFF (Industrial Facts and Forecasting) and HMRC research paper, ‘High Income Child Benefit Charge: awareness, understanding and decision-making processes (October 2018)’, theorized that, ‘The most common misconception held by respondents was that individuals are not eligible to claim Child Benefit if their income is over the £50,000 HICBC threshold, as ‘claiming’ is perceived to be synonymous with receiving payments. Some respondents were under the misapprehension that Child Benefit as a whole is “means-tested” and therefore no longer viewed it as a universal benefit.’

The latest proposals to the HICBC certainly address the problem that the full amount of child benefits would be lost as soon as the higher rate tax threshold was reached. Nevertheless, a lone parent or single earner couple earning just above the higher rate tax threshold would lose the full amount of child benefit, whilst a dual earner couple both earning just under the individual threshold would escape the charge. These inconsistent discrepancies within the measure affect a large proportion of households and provide food for thought for further amendments to the scheme by the government.

How To Comply With The High Income Child Benefit Tax Charge?

In order to comply with the HICBC, if you or your partner have an individual adjustable net income of over £50,000 and are receiving child benefits, you will need to declare this in your annual self-assessment returns. If your adjustable net income is below £50,000 then you will not be subject to any charge for child benefits.

We hope this outlined to you exactly what the High-Income Child Benefit Tax Charge is and whether or not it applies to you or your household. If you require any more information on any welfare benefits, or anything accounting related for that matter, please don’t hesitate to get in contact with us at Nordens where one of our trusted advisors would be happy talking you through your query.