High income child benefit charge

The Child Benefit Charge is a tax that an individual (or his or her partner) must pay if either of them has a personal income of more than £50,000 and is eligible for Child Benefit. In this blog, we will make you understand the high-income child benefit charge and provide you advice how much is the child benefit tax charge, who have to pay it and how to avoid it.

1. What is a high income child benefit charge?
2. How much is child benefit tax charge?
3. High income child benefit charge (Remittance basis charge)
4. Who pays the high-income child benefit tax charge?
5. Pay the high income child benefit charge
6. In case you didn’t get information from your partner or ex-partner
7. Stop your child benefit
8. Restart your child benefit
9. In case your circumstances change
10. Electing not to receive child benefit
11. Important things to consider
12. How to avoid child benefit tax charge?

What is a high income child benefit charge?

If any individual has an income of above £50,000, and either –

1. You or your partner receives child benefit
2. Some other person receives child benefit for a child living with you and contributes at least an equal amount for the maintenance of the child.

You may subject to a high-income child benefit tax charge.

Note – It makes no difference if the child living with you is not your own.

How much is the child benefit tax charge?

Anyone who is required to pay the charge must pay an amount equal to some or all of the Child Benefit that they or their partner is entitled to. For taxpayers earning between £50,000 and £60,000, the tax charge rises gradually. You need to calculate your “adjusted net income” in order to determine if your income exceeds the threshold. Your adjusted net income is your total taxable income less any personal allowances and Gift Aid. The charge is 1% of a familys Child Benefit for every £100 of annual income above £50,000. If an individual income exceeds £60000, the tax charge will be equivalent to the total amount of the child benefit. To estimate your adjusted new income and calculate how much tax you may need to pay, use the Child Benefit tax calculator - https://www.gov.uk/child-benefit-tax-calculator

High Income Child Benefit Charge (HICBC)

1% of child benefit for each £100 of adjusted net income between £50,000 and £60,000.

Who pays the high-income child benefit tax charge?

If you and your partner both earn more than £50,000, the one with the higher income is responsible for paying the tax bill.‘Partner’ means an individual –

1. You’re married to
2. You’re not permanently divorced
3. In a civil partnership
4. Living with as if you were.

If your income exceeds the threshold

If your income exceeds the threshold, you have two options to choose from either –

1. You have the option of receiving Child Benefit payments and paying any tax charges due at the end of each tax year,
2. Or not receiving Child Benefit payments and not paying any tax charges due at the end of each tax year.

Also See: Tax-Free Childcare Scheme And Childcare Voucher Scheme

Pay the high-income child benefit charge

In order to pay the tax charge, you must –

1. Register for Self-Assessment
2. Submit your Self-Assessment tax return and pay your due taxes for each tax year.

If you do not normally file a tax return, you must register by the 5th of October following the tax year for which you must pay the tax charge. You could face a penalty for not registering for self-assessment or not declaring child benefit on your self-assessment tax return.

In case you don’t get information from your partner or ex-partner

You can ask HM Revenue and Customs (HMRC) if your partner or ex-partner receives Child Benefit or has a higher adjusted net income than you. HMRC will respond with a yes or a no’, but will not provide you with any financial information.

Write to HMRC

You must notify HMRC about the tax year in question along with the following –

1. Name, address, date of birth and National insurance number
2. Partner or ex-partner’s name
3. Adjusted net income
4. Unique taxpayer reference number (If you have one)

You can also include your partner’s or ex-partner’s address, date of birth, unique taxpayer reference and national insurance number.

Send your letter to HMRC at the following address –

Pay As You Earn and Self-Assessment
HM Revenue and Customs
BX9 1AS

Stop your Child Benefit

In order to stop the child benefit, you can either –

1. Fill an online application form
2. Reach out to the child benefit office by call or post

It is necessary for you to have Government gateway user ID and password while filling the application form. In case you don’t have a user ID, create it when you fill the application form.

Note - You cannot stop receiving Child Benefit if you are using it to repay an overpayment.

Restart your Child Benefit

You can restart your child benefit -

1. Even if you’ve previously charged because of the tax charge
2. You are still eligible for the child benefit

In order to restart your child benefit, you must do the following –

1. Fill an online application form
2. Reach out to the child benefit office by call or post

It is necessary for you to have Government gateway user ID and password while filling the application form. In case you don’t have a user ID, create it when you fill the application form.

In case your circumstances change

1. Change in Income

   - If your total income for a tax year is less than £50,000, you would not be required to pay the tax charge. At any time, you can opt to stop or restart your Child Benefit. To see how your income change will impact your tax charge, use the Child Benefit tax calculator to estimate.

2. You have a new child

   – Claiming Child Benefit allows you to be eligible for:
   1. National Insurance credits, which safeguard your right to the State Pension
   2. other benefits such as Guardian's Allowance

   Child Benefit demonstrates that you (or your partner) provide financial support for another child. Therefore, you may be required to pay less child support if your children do not live with you.

   You can file a new claim or simply protect your right to the above by doing the following:

   1. Submitting a claim form for Child benefit
   2. Ticking the box that says ‘not have the benefit paid’.

3. A partner moves in or out

   – If your income exceeds £50,000 and you move in or split up with someone who receives Child Benefit, your situation may change. If your income exceeds £50,000 and is greater than your new partners income, you must pay the tax charge. If your partners income is higher, they will pay it.

   The tax charge is applicable from the date you move in together to the date you permanently separate or Child Benefit stops. For example – A Child is too old to qualify.

Also See: Gifting Property to children

Electing not to receive child benefit

If your income exceeds £50,000, your child benefit will not be taxed automatically. The claimant will be able to use the benefit and will not be affected by the charge, i.e. the claimant will receive the full child benefit even if they or their partner are subject to a tax charge. If a claimant or their partner does not want to pay the charge, they should choose not to receive the child benefit for which they are eligible. However, if they or their partner do not earn more than £50,000, the claimant may wish to withdraw that election, which is known as a revocation.

Important things to consider

• If you do not claim child benefit, you will lose the NI credits that are available to child benefit claimants until the child reaches the age of 12.
• If you dont work or arent eligible for NI credits for another reason, these can be crucial for accumulating entitlement to a state pension and other benefits.
• Furthermore, failing to claim child benefit will have a significant impact on the child, as they will not be issued a National Insurance number when they reach the age of 16. This means the child will have to seek one actively, and they may have to go through a face-to-face interview to do so.

When you were required to pay HICBC but failed to file your self-assessment in the previous year

Call HMRC right away and register for Self-assessment so that you can file tax returns for the relevant years.

How to avoid the Child Benefit tax charge?

Making pension contributions, whether you are employed or self-employed, may reduce or eliminate this tax. For employed individuals, ensuring that all allowable employment expenses are claimed could be an effective strategy. However, there is a lot of room to restructure your affairs if you are self-employed or a company director to plan around this tax. For example, paying other family members a market rate to perform tasks in your business or strategically timing your income could result in you receiving the full Child Benefit.

In case you have any query or want specialist advice on "High-Income child benefit charge", kindly call us on 03330886686, or you can also e-mail us at enquiry@dnsaccountants.co.uk

About the author

Sumit Agarwal
Sumit Agarwal (ACMA ACA India), the Managing partner of dns accountants is a highly respected accountant with expertise in helping owner-managed businesses.