The high income child benefit charge
Background
The high income child benefit charge (HICBC) was first introduced on 7 January 2013 to claw back, through the self-assessment regime, child benefit payments made to high-income families and households.
Child benefit
Child benefit is a weekly allowance paid to individuals with parental responsibility for children under the age of 16, or those past this age that remain in full-time education. For the 2023/24 tax year, the rates of child benefit are £24 per week for the first (or only) child with an extra £15.90 payable per week for each additional child.
The charge
The HICBC applies to claw back some or all of the child benefit received where the recipient or their “partner” (their spouse, civil partner or someone with whom they are living as if they were a spouse or civil partner) has “adjusted net income” in excess of £50,000 in the tax year. The claw-back is 1% of the child benefit for every £100 of income above £50,000. So, where one partner’s adjusted net income exceeds £60,000 in a tax year, the full amount of child benefit received will be clawed back. “Adjusted net income” is calculated as an individual’s net income for the tax year (comprising total income less allowable losses) less the gross amount of any Gift Aid and pension contributions made.
The HICBC is charged on the partner with the higher level of adjusted net income, which may not always be the person who received the child benefit.
Where an individual’s level of income means they would be subject to the HICBC, they (or their partner) can continue to receive the child benefit and report the charge annually, or the partner entitled to receive child benefit can elect not to receive it.
Reporting
Where a HICBC does arise, it should be reported on the individual’s annual self-assessment tax return and paid by 31 January following the tax year of charge.
Where individuals would not otherwise be within the scope of the self-assessment regime, they will be required to notify HMRC, by 5 October following the conclusion of tax year, that they will need to submit a tax return for the purpose of reporting the HICBC.
Failure to notify chargeability, or failure to report the HICBC, can result in HMRC assessing historic HICBC liabilities and seeking to raise penalties. There have been legal challenges over the past few years as to the extent to which HMRC are able to do this. However, the legislation is now clear that HMRC can raise assessments for HICBC liabilities in the same way that they can for income tax and capital gains tax liabilities (subject to the usual taxpayer protections).
If you, or your partner, have claimed child benefit with income above £50,000, there may be historic and current tax reporting obligations to consider. Please do contact us should you wish to discuss this further or explore how Moore Kingston Smith can assist you.