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Child Benefit May Create a Tax Charge

Income exceeding £60,000 results in the complete clawback of child benefit, with the unchanged £50,000 threshold since 2012 impacting a growing number of families.

Parents and carers need to be aware that if either of the couple have ‘adjusted net income’ in excess of £50,000 then the one with the higher income will potentially be charged to tax on some or all of the child benefit and will need to request a self-assessment Tax Return to report the amount of child benefit received in the tax year. 

The High Income Child Benefit Charge (HICBC) was introduced in 2012/13 and imposes a 1% charge on the amount of child benefit received for every £100 that the taxpayer’s adjusted net income exceeds £50,000. ‘Adjusted net income’ is an individual’s total taxable income before any allowances, but after deducting Gift Aid, pension contributions, and trade union subscriptions.

Where the adjusted net income is £60,000 or more, then 100% of the child benefit is clawed back. The £50,000 threshold has not been increased since it was introduced in 2012 which means that more and more parents are being caught by the HICBC each year. With current inflation it could be argued that this is not “high income” but another “middle-England tax”.

This is also a major conflict with the fundamentals of independent taxation (introduced in 1990), whereby a spouse (or in this case, any couple operating as a family unit, responsible for a child) would not need to disclose their income levels to their beloved, or indeed the fact that they are making a Child Benefit claim at all.

It has recently been announced that in future years the government plans to deduct HICBC directly from salaries via PAYE, which will save those with only employment income from the need to file at Tax Return.

It is possible to opt out of receiving Child Benefit payments where adjusted net income exceeds £60,000. Consequently, the HICBC would not apply and the child benefit would not need to be reported on the tax return. That may mean that a taxpayer who has their tax collected under PAYE would not be required to submit a self-assessment Tax Return.  It is important to still fill in the Child Benefit claim form but state on the form that you do not want to get payments; this ensures the claimant receives National Insurance credits for that year, which count towards their State Pension entitlement. 

In our opinion, if you are filing a Tax Return anyway, because you are self-employed for example, it would be wise to accept the payments and repay them if needed because if your income falls for any reason, you don’t have to worry about making a claim quickly or missing out, as HMRC will only backdate up to 3 months.


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