The High-Income Child Benefit Charge (HICBC) has been a topic of discussion since its introduction in January 2013. This year, as the charge celebrates its tenth anniversary, it is crucial to understand its implications, who it affects, and the available options for parents or guardians. Here we provide a high level summary of the key things you need to know.
Child benefit is a government payment provided to individuals responsible for raising a child in the United Kingdom. The amount varies based on the number of children and their ages, with the current rates set for the 2022/23 tax year. For the eldest or only child, the payment is £21.80 per week, while for any additional children, it amounts to £14.45 per week. Children must be under the age of 16 or under the age of 20 if they are still in education or training.
The HICBC applies to individuals or their partners with an income exceeding £50,000 if they receive child benefit. Additionally, if someone else claims child benefit for a child living with you and they contribute at least an equal amount toward the child's upkeep, you may still be subject to the charge. It's worth noting that the HICBC can affect not only high earners but also basic-rate taxpayers, as the earnings threshold includes various types of income, such as bonuses, rental income, and interest on savings.
For individuals with an income above the threshold, the decision to claim child benefit becomes a personal one. You can either choose to receive the payments and repay the tax charge at the end of the tax year, or you can opt out of receiving the benefit altogether. Opting out has its advantages, as it allows you to still fill in the Child Benefit Claim form. By doing so, you will receive National Insurance credits, which count towards your State Pension.
If one partner earns less than £12,570 a year, completing the form in their name is recommended. Moreover, opting out ensures that your child will be issued a National Insurance number automatically before they turn 16 years old.
If you are already receiving child benefit payments and your income, or your partner's income, exceeds £50,000, you have a choice to make. You can either opt out of receiving child benefit payments, or you can continue receiving the payments and pay any tax charge at the end of each tax year.
To pay the HICBC, you must register for Self Assessment and submit a tax return each tax year. The tax owed must be paid by 31st January after the end of the tax year. It is essential to note that if you do not typically complete a tax return, you need to register by 5 October following the tax year in which the charge applies. Failure to register for Self Assessment or to declare child benefit on your tax return can result in penalties.
Raising awareness and seeking advice
Many families are still unaware of the HICBC, so it is important to raise awareness about its existence and implications. Employers can play a role in informing employees whose income approaches or exceeds the £50,000 threshold. Seeking advice from tax and business advisers can also provide clarity on individual circumstances and help navigate the complexities of the charge.
Understanding the High-Income Child Benefit Charge is crucial for families with an income above the threshold. This charge, although introduced to target high earners, can impact basic-rate taxpayers as well. By being informed about the HICBC, individuals can make informed decisions about claiming child benefit and ensure compliance with tax regulations. If you are unsure whether or not you are affected, or would like advice on the best way to tackle the HICBC, speak to your usual UHY adviser.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
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