When there’s no benefit to child benefit

20.07.2022
Natalie Miller
Tax
Natalie Miller, Manager for Lovewell Blake

You are entitled to Child Benefit payments if you are responsible for bringing up a child who is under 16, or under 20 if they stay in approved education or training. It is a non-taxable benefit, which can be claimed at a current rate of £21.80 per week for your eldest (or only) child, and then £14.45 per week for each further child. Although Child Benefit isn’t means tested and isn’t taxable as such, you may be subject to a tax charge to essentially ‘claw back’ some or all of the benefit if income exceeds £50,000. This is called the High Income Child Benefit Charge (HICBC).

Natalie Miller, Manager for Lovewell Blake

The HICBC applies where you or your partner (regardless of whether you are married) have ‘adjusted net income’ of more than £50,000 and either of you receives Child Benefit.  It may also arise if you receive contributions towards the child’s upkeep from someone else who may not live with you but who receives Child Benefit and is not liable to HICBC themselves. 

Once income tops £50,000, your household’s Child Benefit is effectively withdrawn at a rate of 1% for every £100 of income between £50,000 and £60,000 earned by the higher-earner, ignoring the lower-earner’s income. All the benefit is lost once income exceeds £60,000.

Use HM Revenue & Customs’ (HMRC) online calculator to see an estimate of how much Child Benefit you receive in a tax year and how much HICBC you or your partner may have to pay.

What are the issues?

  • What is adjusted net income:

Adjusted net income isn’t necessarily the same as your taxable income – you include all your income including the value of benefits-in-kind, but then take off some amounts such as trading losses, gift aid payments and pension contributions. 

  • You could be affected even if you don’t receive child benefit or if you’re not the higher earner:

If you are the higher earner, you may be subject to HICBC even if your partner receives the Child Benefit.  On the other hand, if your partner pays the charge, your household income will drop even though you may still receive the Child Benefit.

  • You may not consider that your income is high:

£50,000 may seem quite a low definition of high, particularly as it hasn’t changed since the charge was introduced in 2013.  It is based on the individual’s income, not the household’s, so that a couple who each earn £45,000 won’t be liable whereas a couple where only one works and earns £60,000 will lose all their benefit.  

  • You may not know how to report the HICBC:

If you already complete a self-assessment tax return, make sure that you or your adviser includes Child Benefit receipts.  HMRC will generally want you to register for self-assessment, even if your only income is paid via PAYE and they can collect the charge directly from your salary through adjusting your tax code. 

  • You may not have reported the HICBC in earlier years:

If you realise that you should have paid the charge in earlier years, contact HMRC as soon as possible.  Although recent tax cases have suggested that HMRC’s current method of collecting back taxes may be invalid, HMRC have appealed against the case and have also confirmed that they will be changing the tax law to put the matter beyond doubt.  This means that they can raise assessments to claim the tax for all earlier years.  

  • You may decide it’s not worth claiming child benefit:

If your income consistently exceeds £60,000, you may decide that there’s no point one partner claiming the benefit and then the other having to pay it back, particularly if it means they would have to complete a tax return each year.  However, it is better to claim the benefit but then opt not to receive payments, so that you will qualify for National Insurance (NI) credits which are available until the child is 12 and so that your child is automatically issued with a NI number when they reach 16.  You can opt to reinstate payments if your income reduces in a later year.

If you need help in dealing with an HMRC enquiry or reporting a tax liability

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