Separating Couples – The Importance of Checking Your Child Benefit Claim

What is the High Income Child Benefit Charge (HICBC)?

The High Income Child Benefit Charge (HICBC) is a UK tax that aims to reclaim some or all of the Child Benefit payments received by families where one individual has an income exceeding £50,000.

How does it work?

• Income Threshold: The charge applies if you or your partner have an individual 'adjusted net income' over £50,000.
• Calculation: The charge is 1% of your family's Child Benefit for every £100 of income that exceeds the £50,000 threshold.
• Full Charge: If your income is over £60,000, the charge will equal the total amount of Child Benefit you receive.

Who pays the HICBC?

The person with the higher income in the household is responsible for paying the HICBC, regardless of who actually receives the Child Benefit payments. This is typically done through the Self Assessment tax return system.

Key Points to Remember

• Claiming Child Benefit: You can still claim Child Benefit even if you know you'll have to pay the charge. This is important to protect your child's National Insurance record and future State Pension entitlement.
• Adjusted Net Income: This figure may differ from your taxable income as it includes things like pension contributions and Gift Aid donations.
• Opting Out: You can choose to stop receiving Child Benefit payments to avoid the HICBC.

For further information and to use HMRC's online calculator to help you understand the potential charge, please visit: https://www.gov.uk/child-benefit-tax-charge

Child Benefit Accountants Chester

Understanding the System

• You still get the payments: If you have a child, you're entitled to Child Benefit regardless of your income.
• Higher earner pays: If one person in the household earns over £50,000 annually, the High Income Child Benefit Charge (HICBC) comes into play. This means you'll repay some, or all, of the Child Benefit via your Self Assessment tax return.
• Income over £60,000: If you earn over £60,000, you'll repay the entire amount you receive in Child Benefit.

Key Reasons to Claim

1. National Insurance (NI) Credits: Child Benefit helps protect your State Pension entitlement. You'll receive NI credits even if you're not working or earning below the NI threshold. This is crucial for a full State Pension later in life.

2. Flexibility: You can choose to stop receiving Child Benefit payments but still maintain the registration (and the NI benefits). If your income drops below £50,000 in the future, you can restart payments.

Things to Consider

• HICBC Calculator: Use the HMRC's Child Benefit tax calculator (https://www.gov.uk/child-benefit-tax-calculator) to work out how much you might need to repay.
• Income Fluctuations: If your income is close to the thresholds, it could fluctuate year-to-year, making claiming Child Benefit worthwhile.

In Summary

Even with the HICBC, there are strong reasons to claim Child Benefit. It's primarily about protecting your future State Pension entitlement.

Child Benefit Accountants Chester

There isn't a salary level at which you become completely ineligible for Child Benefit. However, if you or your partner earns over £50,000 per year, you'll need to start repaying some of the Child Benefit you receive. This is known as the 'High Income Child Benefit Tax Charge'.

• How it works: The amount you have to repay increases gradually the more you earn over £50,000. For every £100 of income over this threshold, you repay 1% of your Child Benefit entitlement. If you or your partner earns over £60,000, you'll need to repay the full amount.

Important Note: The income threshold for starting repayments will rise to £60,000 on the 6th of April 2024.

Example:

• If you earn £55,000, you're £5,000 above the threshold.
• This means you'll pay back 50% of your Child Benefit.

Should I still claim Child Benefit even if I have to repay it?

It's usually worth claiming Child Benefit even if you'll later repay some or all of it. This is because it helps to:

• Protect your State Pension entitlement: Claiming ensures you receive National Insurance credits.
• Give your child a National Insurance number: This is needed for future benefits and savings.

Child Benefit Accountants Chester

Understanding the High Income Child Benefit Charge

• The HICBC is a tax charge for higher earners who receive Child Benefit.
• If your individual income exceeds £50,000, or if you have a partner and your income is the higher of the two, you may have to pay it.
• The charge cancels out the Child Benefit you receive at a rate of 1% of your Child Benefit for every £100 of income over £50,000.

How to Appeal

If you think the HICBC has been applied incorrectly, you have the right to appeal. Here's how:

1. Contact HMRC:

   • Phone: Child Benefit Helpline on 0300 200 3100
   • Write to: HMRC, Child Benefit Office, BX9 1AN
   • Clearly explain the reason for your appeal and provide supporting evidence (e.g., payslips, tax return, evidence of allowable deductions).

2. Mandatory Reconsideration: HMRC will review your case. If you're still unsatisfied with their decision, you can request a mandatory reconsideration. This involves a more in-depth review of your situation.

3. Appeal to the Tribunal: If the mandatory reconsideration doesn't resolve the issue, you have the option to appeal to an independent tribunal (the First-tier Tribunal, Tax Chamber).

Important Points

• You usually have a specific timeframe to appeal, so check your HMRC correspondence.
• You can seek help from organisations like Citizens Advice or TaxAid for guidance.
• Keep records of all communication with HMRC related to the appeal.

For more information, refer to the official government guidance:

• HICBC on GOV.UK: https://www.gov.uk/government/publications/high-income-child-benefit-charge-data/high-income-child-benefit-charge

Child Benefit Accountants Chester

There isn't a direct 'penalty' in the traditional sense for the High Income Child Benefit Charge (HICBC). Instead, the HICBC functions as a tax that gradually reduces, and can entirely remove, your received Child Benefit.

• How it works: If one partner in your household has an 'Adjusted Net Income' over £50,000, you'll need to repay part of your Child Benefit. The charge is 1% of your Child Benefit for every £100 of income over that £50,000 threshold. If your income reaches £60,000 or above, you'll repay the entire amount you received.

• Payment: You normally pay the HICBC through your Self Assessment tax return.

Important Considerations:

• Opting out: You can choose to stop receiving Child Benefit payments altogether to avoid the HICBC. However, you would lose out on National Insurance credits that protect your State Pension rights.
• Late filing: HMRC can issue penalties if you fail to file your Self Assessment tax return, or pay the charge on time.

For More Information:

• GOV.UK guidance on the High Income Child Benefit Charge: https://www.gov.uk/child-benefit-tax-charge

Child Benefit Accountants Chester

If you or your partner earns over £50,000 a year, you'll still receive your Child Benefit payments. However, you may have to pay back some or all of it through a tax charge known as the High Income Child Benefit Tax Charge.

How it works:

• The Charge: For every £100 you earn over £50,000, you'll pay back 1% of your family's total Child Benefit entitlement.
• Who Pays: The person with the highest income in your household is responsible for paying the tax charge.
• Repayment: You'll repay the charge through your Self Assessment tax return.

Example:

If you earn £58,000, you'll be £8,000 over the £50,000 threshold. This means you'll need to pay back 80% of your Child Benefit. If you have two children, you would lose a significant portion of the benefit.

Important Points:

• Even if you have to repay the full Child Benefit amount, it might still be worth claiming it. This helps protect your National Insurance record and future State Pension entitlement.
• You can use the Child Benefit tax calculator on the HMRC website to work out how much you might have to pay back: https://www.gov.uk/child-benefit-tax-calculator

Child Benefit Accountants Chester

The High Income Child Benefit Charge (HICBC) is a tax that applies if you or your partner have an individual income exceeding £50,000 in a tax year. The charge gradually reduces the benefit you receive, and once income exceeds £60,000, the charge equals the full amount of Child Benefit.

How to Reduce the HICBC

Here are several ways to reduce or avoid the High Income Child Benefit Charge:

• Opt out of Child Benefit: This is the most straightforward way to avoid the HICBC. You can still claim Child Benefit but choose not to receive the payments. Your or your partner's National Insurance credits will still be protected so you won't miss out on State Pension contributions.
• Increase pension contributions: Pension contributions reduce your 'adjusted net income', which is the figure used to calculate the HICBC. Increasing your pension contributions can bring your income below the £50,000 threshold or reduce the amount of the charge. You'll also benefit from higher tax relief on your contributions.
• Make charitable donations through Gift Aid: Donations made through Gift Aid also reduce your adjusted net income. The charity will receive an extra 25p from HMRC for every £1 you donate, increasing the impact of your giving.
• Salary sacrifice schemes: If your employer offers them, salary sacrifice schemes (like childcare vouchers) can lower your taxable income. However, many of these schemes are less common now due to changes in tax rules.
• Pay the charge via your tax code: If you can't reduce your taxable income enough, you might be able to arrange for HMRC to collect the charge through your tax code for the following tax year.

Important Considerations

• Both partner's incomes: The charge is based on the higher earner's income in a couple, not combined household income.
• Child Benefit Calculator: Use the official HMRC Child Benefit tax calculator (https://www.gov.uk/child-benefit-tax-calculator) to estimate your charge and the potential impact of different strategies.
• It's not always about saving money: Even if you'll pay the charge in full, claiming Child Benefit protects your National Insurance record. This remains crucial for your State Pension entitlement.

Child Benefit Accountants Chester

Understanding the High Income Child Benefit Charge (HICBC)

The HICBC is a tax charge that may be applied if you or your partner have an individual income exceeding £50,000 during the tax year. It's designed to gradually reduce the amount of Child Benefit you receive as your income increases.

Do you need to pay?

You might need to pay the HICBC if both the following apply:

• Your individual income, or your partner's, is over £50,000.
• You or your partner receives Child Benefit payments.

Important Notes:

• Who pays: The partner with the higher income is liable for the HICBC.
• 'Partner' means: Someone you're married to, in a civil partnership with, or living with as a couple.
• Adjusted Net Income: The HICBC is calculated based on your 'adjusted net income,' which includes salary, taxable benefits, and other forms of income.

How much is the HICBC?

• The charge is 1% of your Child Benefit entitlement for every £100 of income between £50,000 and £60,000.
• If your income exceeds £60,000, the charge equals the full amount of Child Benefit you receive.

How to deal with the HICBC

1. Calculate: Use the government's Child Benefit tax calculator to work out if you're liable and the amount: https://www.gov.uk/child-benefit-tax-calculator
2. Pay: The charge is typically paid through your Self Assessment tax return.
3. Opt-out: If you don't want to complete a Self Assessment, you can choose to stop receiving Child Benefit payments, avoiding the charge.

Child Benefit Accountants Chester

Here's a breakdown of why you should apply for Child Benefit in the UK even if you earn over £60,000:

Key Reasons:

• National Insurance Credits: Child Benefit helps protect your State Pension entitlement. You'll receive National Insurance credits even if you don't get the payments themselves. This is essential, especially if you are a stay-at-home parent or earn below the National Insurance threshold.
• Child's National Insurance Number: Registering for Child Benefit ensures your child automatically receives a National Insurance number before they turn 16.
• Gateway to Other Benefits: In some situations, having Child Benefit in place can help you qualify for other forms of financial support.
• Changes in Circumstances: Your income might fluctuate in the future. If it drops below £60,000, you can easily start receiving full Child Benefit payments again.

The High-Income Child Benefit Charge (HICBC)

If you or your partner earns over £50,000 annually, you'll be subject to the HICBC. This means you'll need to repay a portion (or all) of the Child Benefit through your tax returns. Here's the breakdown

• Income over £60,000: You'll repay the entire Child Benefit amount.
• Income between £50,000 and £60,000: You'll repay a portion of the Child Benefit.

Should you still apply?

Definitely! Even if you have to repay some or all of the Child Benefit, the National Insurance credits and other potential benefits make it worthwhile.

How to Apply

You can apply for Child Benefit on the Gov.UK website (https://www.gov.uk/child-benefit). You can choose to receive the payments or opt out and still secure those important National Insurance credits.

Important Note: Even if you decide not to receive the payments, it's crucial to register for Child Benefit to get the advantages mentioned above.

Child Benefit Accountants Chester

What is the High Income Child Benefit Charge (HICBC)?

The HICBC is a tax charge in the UK for individuals whose 'adjusted net income' exceeds £50,000 in a tax year. The charge gradually claws back the Child Benefit received, reaching 100% when your income is £60,000 or above.

How to Avoid the High Income Child Benefit Charge

There are several strategies you can use to avoid or reduce the HICBC:

• Opting Out of Child Benefit: The simplest way to avoid the HICBC is to stop receiving Child Benefit payments altogether. However, remember that you may lose valuable National Insurance credits which affect your State Pension entitlement. You can still claim and then opt-out by contacting HMRC (see https://www.gov.uk/child-benefit-tax-charge/stop-child-benefit)
• Reducing Your Taxable Income: If your 'adjusted net income' is just over the £50,000 threshold, reducing it below this level will eliminate the charge. Methods include:
  • Pension Contributions: Increase your pension contributions, as these are deducted from your income before tax. You'll benefit from tax relief, and your pension savings will grow.
  • Salary Sacrifice Schemes: If your employer offers them, participate in schemes like childcare vouchers or cycle-to-work, as these reduce your taxable income.
  • Gift Aid Donations: Charitable donations made through Gift Aid reduce your taxable income.
• Income Splitting: If you're in a partnership and one partner earns slightly over the threshold, consider ways to shift some income to the lower-earning partner (but be aware of tax rules around income shifting).

Important Considerations

• Calculating Your Adjusted Net Income: Your 'adjusted net income' includes salary, taxable benefits, investment income, and rental income. Make sure you do the calculations correctly.
• The Charge is Per Individual: Each person exceeding the £50,000 threshold must pay the HICBC based on their individual income, not household income.
• Long-Term Financial Planning: These strategies can have broader implications for your finances. Seek professional financial advice if you're unsure about the best choices for your situation.

Child Benefit Accountants Chester