A re-cap on the High Income Child Benefit Charge (HICBC)
In 2013 the Child Benefit rules were amended to the affect that households with ‘high income’ would be required to pay back some or all of the Child Benefit they receive, through the self-assessment tax system.
Those affected by the changes who have unwittingly claimed the benefit without dealing with the self-assessment clawback are now being hit with fines and having to pay the clawback charges running into thousands of pounds.
The changes to Child Benefit, which were introduced five years ago to claw back Child Benefit from high earners, affect parents earning £50,000 or more per annum and where:
- Either partner received Child Benefit; or
- Someone else received Child Benefit for a child living with you and they contribute at least an equal amount towards the child’s upkeep.
Higher earners or their partner lose 1% of the benefit for every £100 earned above £50,000. Once the highest income exceeds £60,000 per annum all of the benefit received is effectively extinguished by this method.
You may not have previously considered the effect of HICBC if your income was below £50,000 per annum. However, it is important that you regularly review your salary as workplace perks such as having a company car, fuel allowance, or an unexpected pay rise can increase your salary above the threshold. If your salary for 2018/19 is likely to exceed this amount, you should be aware of the following:
- Parents with the higher income for 2018/19, more than £50,000, will need to register with HMRC to submit a Self Assessment Tax Return and pay any HICBC due, unless they are already registered to complete a tax return, in which case they will need to enter the amount of Child Benefit received and pay any tax due;
- The parent with the higher income will need to make the declaration, even if they are not the person claiming the Child Benefit;
- For those families where one parent earns £60,000, the HICBC will equal the whole of the Child Benefit received, going forward, they can either opt out of receiving the Child Benefit payment or repay it at the end of the tax year on their Self Assessment Tax Return.
The rules are complex (and for many may seem unfair – for example in a family where both parents work and each earns less than £50,000, they will keep the full amount of the benefit).
What options do I have to avoid the HICBC charge?
There is potential tax planning available that can be used to reduce your future taxable income below the £50,000 and £60,000 thresholds. For example, personal pension contributions achieve 20% tax relief at source and extend your basic and higher rate thresholds, meaning more of your income is taxed at the lower rates. They can also serve to claw back personal allowances and help to avoid repayment of Child Benefit.
If you would like any additional information, or would like to discuss your tax affairs in general, please don’t hesitate to get in touch.
Partner – Head of Tax
direct dial: 01942 292541
mobile: 07790 840394
direct dial: 01942 292505
mobile: 07730 436070