Does the high-income child benefit charge apply?
The high-income child benefit charge (HICBC) applies to claw back child benefit from either the claimant or his or her partner where at least one of them has an income of £50,000 or more.
The charge is perhaps one of the more unfair tax charges in that the person who suffers the liability may not be – and often isn’t – the person who received the child benefit.
Nature of the charge
The charge may apply to an individual with income over £50,000 where either they or their partner has received child benefit in the tax year. It may also bite where someone else gets child benefit for a child who lives with you and they contributed an equal amount to the child’s upkeep. It does not matter whether the child living with the individual is theirs or not.
It is important to note here that ‘partner’ does not have to be a spouse or civil partner – the charge also applies to unmarried couples living together as spouses or civil partners.
The measure of income for the purposes of the charge is ‘adjusted net income’. Broadly, this is income after taking account of Gift Aid donations and pension contributions and, for the self-employed, trading losses.
Where both partners each have income in excess of £50,000, the charge is levied on the higher earner; if their income is the same, it is the person who receives the child benefit who pays the charge.
How the charge is calculated
The charge claws back 1% of child benefit for every £100 by which adjusted net income exceeds £50,000. Where adjusted net income is £60,000 or more, the charge is 100% of the child benefit received in the tax year.
Suki claims child benefit for her two children. This is set at £20.70 per week for the eldest child and at £13.70 for her youngest child – equal to £1,788.80 for 2019/20.
Suki earns £30,000 from her job as a teacher and her husband Yuto earns £55,000 (after pension contributions) from his job in IT.
As Yuto’s adjusted net income is more than £50,000, the HICBC bites. It is equal to 50% ((£55,000 - £50,000)/100 x 1%) of the child benefit received by Suki in the year, i.e. £894.40.
Matthew and Maria have two children in respect of which Maria claims child benefit, equal to £1,788.80 for 2019/20. Matthew has adjusted net income of £58,000 and Maria has adjusted net income of £72,000.
As the higher earner, Maria is liable for the HICBC. As her adjusted net income is more than £60,000, the charge is equal to the child benefit paid in the year, i.e. £1,788.80
Paying the charge
Where a person is liable for the HICBC, they must declare it on their self-assessment tax return. The tax can be paid via self-assessment.
Alternatively, if the tax return was filed by 11th 30 December 2019 and the underpayment for the year in total is less than £3,000 it can be collected through PAYE via an adjustment to the tax code.
Worth stopping the claim?
Where the charge is equal to the full amount of the child benefit, it may seem easier not to claim it, rather than claiming it only to have to pay it back. However, child benefit paid for a child under 12 comes with National Insurance credits, helping to build up entitlement to the state pension. If the claimant does not otherwise pay sufficient National Insurance for the year to be a qualifying year, failing to claim may adversely affect their state pension. The solution is to claim but elect not to receive the benefit.