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Autumn 2023

Child benefits and the sting in the tail

If you or your partner get Child Benefit, keep the High Income Child Benefit charge (HICBC) in mind. High income for these purposes is lower than you might think.

The charge applies if you, or your partner, individually have income more than £50,000, and

  • you or your partner get Child Benefit, or
  • someone else gets Child Benefit for a child living with you, and they contribute at least an equal amount towards the child’s upkeep.

The charge applies regardless of whether the child living with you is your child, or not. Note, too, that for the HICBC, partner doesn’t just mean spouse or civil partner, but includes someone you live with as if you were married.

The threshold to watch is what’s called ‘adjusted net income’. This is taxable income after deducting Gift Aid payments and pension contributions, but including interest from savings and dividends. If both you, and your partner, have income over the £50,000 threshold, the one with the higher income is responsible for paying HICBC.

The HICBC claws back Child Benefit at a rate of 1% for every £100 of income between £50,000 and £60,000. By the time income reaches £60,000, all Child Benefit payment is effectively lost. You can disclaim the actual Child Benefit payments, so you don’t pay the charge.

What to look out for

What takes many people unawares is that it’s your responsibility to tell HMRC if your income is over the HICBC limit, making you liable to the charge. What’s more, there are time limits involved. If you don’t already submit a self assessment tax return, you need to tell HMRC within six months of the end of the tax year: that’s by 5 October of the following tax year. If liable to HICBC, you need to file a self assessment tax return each year – even if you are an employee and usually pay tax through PAYE.

Many people are also taken aback by the fact that if you don’t tell HMRC within the relevant timescale, it can charge a penalty for non-notification. This is worked out with reference to what’s called the potential lost revenue, and hinges on two factors: whether it considers your behaviour was deliberate or not; and whether it gets the information because it has ‘prompted’ you, or you provided it voluntarily.

Where couples keep their financial affairs separate, the stakes can increase. It’s not unusual to find that someone is faced with a demand for HICBC for a run of years, plus failure to notify penalties, when they weren’t even aware that their partner was claiming Child Benefit.

This happened to taxpayer, Mr Ashe, who got a ‘nudge’ letter from HMRC, telling him to check whether he ought to pay the charge – eight years after he had started living with his partner. He simply hadn’t known that his partner claimed for her two children. In Mr Ashe’s case, HMRC raised an assessment for more than £4,000 for HICBC, and just over £300 in penalties.

Fortunately, on this occasion, all the penalties were ultimately cancelled.

The HICBC is set to impact more couples than ever before, as wages rise with inflation, while the HICBC income limit remains fixed. Please do contact us if you have any concerns in this area.

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