What is High Income Child Benefit Charge (HICBC)?

Are you earning over £50,000?

Are you or your partner in receipt of Child Benefit?

If you answered yes to both of these, did you know that you have to pay back some of the Child Benefit via a Self Assessment Tax Return?

What is High Income Child Benefit Charge?

High Income Child Benefit Charge (HICBC) was introduced in January 2013 by George Osbourne (then the Chancellor of the Exchequer) as it was deemed that Child Benefit was for low income families, and therefore if you earned above £50,000 you were not a low income family.  Also, at the time, the high rate tax charge kicked in at £42,475, so if you earned £50,000 you were comfortably into the high rate tax band.

However, as wages have increased and the high rate tax band has increased (currently at £50,270), it is no longer the case that this charge affects only high rate tax payers and many will not be aware that they need to repay Child Benefit.

HICBC imposes a charge which results in 1% of your Child Benefit needing to be repaid for every £100 that you earn above £50,000.  Those with an income of £60,000 or more need to repay all of their Child Benefit.

There are a few catches.  The HICBC applies to the individual who is earning above £50k, and is applicable if another person in the household is in receipt of Child Benefit, regardless of whether that child is biologically theirs.

So, if one parent earns £55k, and the other is a stay at home parent, HICBC will apply. But if you have two parents earning £49k each, HICBC will not apply. 

Who should register for self assessment?

It is the responsibility of the higher earner to ensure that they register for Self Assessment with HMRC and that they declare and pay any HICBC due.

If your income is over £60k, you may think that there is no point in claiming Child Benefit, as you will just have to repay it all. However, this isn’t always the best idea.  Especially if one of the parents earns less than £6396 per year or doesn’t work at all.  

Being registered for Child Benefit means that the recipient (the low or non earner) earns NI credits towards state benefits like state pension until the child is 12 years old.  This is just over a third of the qualifying years needed to qualify for the full state pension.  If you have more than one child, then the potential lost years is even higher.

In addition to this, if you have NEVER registered for child benefit as a result of earning above £60k and thinking “what’s the point?”, this could result in difficulties for you child getting a National Insurance number when they are older. If you have registered your child for Child Benefit, they will be automatically allocated an NI number. This will be sent to the child when they are 15 years and 9 months old.  If you haven’t ever registered for Child Benefit, an NI number will not be sent out, and that child will need to apply for an NI number in the same way that a migrant into the UK would.  It is unlikely that a British born applicant would need to go through the process of attending the job centre for an interview, but they would need to prove they had a right to work in the UK.

There is a solution though!

Rather than not bothering to claim child benefit, parents affected by the HICBC should claim the benefit and then you can opt to stop receiving the money by completing this online form – this is not the same as cancelling your claim which would result in the lost NI credits.  

Alternatively, you receive the funds and bank in a separate account which isn’t touched.  It can then be fully repaid to HMRC each year.  You will need to ensure you complete a Self Assessment each year, and failure to do this could result in a penalty.

If your income is getting close to the £50k threshold, you could opt to contribute more into your pension pot, as the threshold is based on your adjusted net income (so after pension contributions are deducted).  This is only something for a short term plan as invariably your income will continue to increase and putting money into a pension scheme means that you don’t have this income immediately as disposable income.
If you have any questions about this or need help to complete a Self Assessment, then please contact us at Turas Accountants on 01952 882434 or [email protected]