The High-Income Child Benefit Charge (HICBC) is a tax that will affect you as an individual or couple if you receive Child Benefit while also earning a high income.
Lots of people still aren’t clear on the tax implications and liabilities when it comes to HICBC, so it can often trip up taxpayers. However, interest rates and penalties do apply for non-compliance, so it’s important to understand what it means for you and what actions you need to take.
To help you with compliance and getting the best out of your benefits, here’s a simple explanation as to how it works:
What is Child Benefit?
In short, it’s a government payment made to parents or guardians to help with the costs of raising children.
Who can receive it?
You can claim Child Benefit if you’re responsible for a child under 16 (or under 20 if they’re in approved education or training). Only one person can claim Child Benefit for a child in their care.
What’s the High-Income Threshold?
The HICBC comes into play when the income of an individual or household exceeds a certain threshold. This threshold is £50,000. It’s also important that you communicate with your partner so you’re both clear on the implications and potential for the charge.
What happens when you exceed this threshold?
Once your income exceeds this threshold, you’ll be subject to a graduated tax charge – your child benefit will effectively be withdrawn at a rate of 1% for each £100 earned by the higher-income partner over £50,000 a year.
When does this cancel out?
Once your income is £60,000 or more, the HICBC effectively cancels out all of your Child Benefit through taxation. In this case, you would owe an amount to HM Revenue and Customs (HMRC) that’s equal to the total Child Benefit received.
Who pays the charge?
The HICBC is paid by the higher earner in your household, even if they are not the one receiving Child Benefit.
Do I still need to complete a self-assessment?
Even if you just receive PAYE income, you still have to complete a self-assessment tax return if you
are liable for the HICBC.
When should you report it?
If your or your partner’s income exceeds the threshold, you will need to report it to HMRC, even if you don’t want to claim Child Benefit. You can choose not to receive Child Benefit to avoid the associated charge, but it’s often recommended to still claim it in order to get National Insurance credits that count toward your state pension.
Can I avoid paying the high-income Child Benefit charge?
If your income is above £50,000 a year, you might still be able to avoid/ reduce the charge. That’s because it’s based on your ‘adjusted net income’ (your total taxable income minus certain tax reliefs, for example, pension contributions and Gift Aid charity donations).
So, if you pay any tax-deductible expenses, these might take you below the threshold, or at least reduce how much you may have to pay back. Please get in touch to see if we can help you avoid/ reduce the charge.
How often should you pay HICBC?
The HICBC is typically paid through the self-assessment tax system, which means it’s settled annually when you file your tax return.
It’s important to note that tax rules and thresholds can change over time, so it’s always a good idea to check the most up-to-date information on the HMRC website or speak to a tax advisor if you have specific questions about the High-Income Child Benefit Charge. HMRC have been sending “nudge” letters out on this topic, so make sure you’re being compliant to avoid any interest and penalties.
We’re always happy to help with any questions you might have. Get in touch.