The high-income child benefit charge (HICBC) is applied when the claimant of the child benefit, or their partner has an income of £50,000 or more. The person charged may not always be the one that received the child benefit, and it may not even be their child.

If both partners have income in excess of £50,000, then the charge is the responsibility of the higher earner. If their income is equal, the recipient of the benefit will be charged.

How is the HICBC charge calculated?

The measure of the income for the purposes of the HICBC charge is known as ‘adjusted net income’. This is calculated through removing the cost of Gift Aid donations and pension contributions, as well as trading losses for the self-employed.

The HICBC charge is 1% of child benefit for every £100 that is over £50,000 adjusted net income. If adjusted net income is £60,000 or more, then the charge amount to 100% of the child benefit in that tax year.

Example

Carl claims child benefits for two children. This would be £20.70 per week for the eldest child and £13.70 for the younger child, totaling £1,788.80 paid in child benefit for 2019/20.

Carl earns £30,000 and his wife Ellie earns £60,000 per year but pays £5,000 into her pension pot.

Since Ellie’s adjusted net income is then £55,000, the HICBC charge will be applied at 50% ((£55,000 – £50,000)/100 x 1%), so a tax charge of £894.40 will applied to Ellie.

How do I pay the charge?

When someone is liable for the HICBC, it must be declared on their self-assessment tax return and can be paid through this method. If the tax return had been filed by 30 December 2019, and the underpayment for the year is less than £3,000, it can be collected via PAYE following a tax code adjustment.

Should I combat the tax charge?

In a case where the charge is equal to the amount of the child benefit, it is often simpler to not claim it, rather than having to eventually pay it back. Child benefits for children under 12 come alongside National Insurance credits, helping to build entitlement towards state pension. If the individual does not make enough National Insurance contributions for the year to qualify, it may negatively impact their state pension. The best way to avoid these impacts is to claim the benefit but elect not to receive it.

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Any questions?

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The high-income child benefit charge (HICBC) is applied when the claimant of the child benefit, or their partner has an income of £50,000 or more. The person charged may not always be the one that received the child benefit, and it may not even be their child.

If both partners have income in excess of £50,000, then the charge is the responsibility of the higher earner. If their income is equal, the recipient of the benefit will be charged.

How is the HICBC charge calculated?

The measure of the income for the purposes of the HICBC charge is known as ‘adjusted net income’. This is calculated through removing the cost of Gift Aid donations and pension contributions, as well as trading losses for the self-employed.

The HICBC charge is 1% of child benefit for every £100 that is over £50,000 adjusted net income. If adjusted net income is £60,000 or more, then the charge amount to 100% of the child benefit in that tax year.

Example

Carl claims child benefits for two children. This would be £20.70 per week for the eldest child and £13.70 for the younger child, totaling £1,788.80 paid in child benefit for 2019/20.

Carl earns £30,000 and his wife Ellie earns £60,000 per year but pays £5,000 into her pension pot.

Since Ellie’s adjusted net income is then £55,000, the HICBC charge will be applied at 50% ((£55,000 – £50,000)/100 x 1%), so a tax charge of £894.40 will applied to Ellie.

How do I pay the charge?

When someone is liable for the HICBC, it must be declared on their self-assessment tax return and can be paid through this method. If the tax return had been filed by 30 December 2019, and the underpayment for the year is less than £3,000, it can be collected via PAYE following a tax code adjustment.

Should I combat the tax charge?

In a case where the charge is equal to the amount of the child benefit, it is often simpler to not claim it, rather than having to eventually pay it back. Child benefits for children under 12 come alongside National Insurance credits, helping to build entitlement towards state pension. If the individual does not make enough National Insurance contributions for the year to qualify, it may negatively impact their state pension. The best way to avoid these impacts is to claim the benefit but elect not to receive it.

If you found this useful, please share it using the icons at the side of the page, or leave a comment below.

Any questions?

If you’d like a meeting or a Skype call to discuss this, please get in touch with your favourite Liverpool accountant