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The High Income Child Benefit Charge – what do I need to know?
If your partner is affected by the High Income Child Benefit Charge (HICBC), there are some traps which you need to be aware of. In this article, we explain what you need to do in order to avoid them.
- Households where one partner has adjusted net income over £50,000 may decide not claim child benefit in order to avoid the HICBC.
- However, not claiming child benefit can mean that you miss out on National Insurance (NI) credits, potentially affecting your state pension entitlement.
- Furthermore, where child benefit has not been claimed, the child does not automatically receive an NI number when they turn 16.
- Instead, it is better to claim child benefit and opt not to receive payments rather than not claim child benefit at all – which will protect your NI credits.
What is the HICBC?
The HICBC is a tax charge designed to claw back child benefit, where either you or your partner has adjusted net income in excess of £50,000. Adjusted net income is not necessarily the same as taxable income as there may be deductions you can make from your income when working out if you or your partner has exceeded the £50,000 threshold. The benefit is effectively withdrawn at a rate of 1% for each £100 earned by the higher-earning partner over £50,000 pa. Therefore, the benefit is fully withdrawn where income of the higher-earning partner reaches £60,000 pa.
In order to avoid means-testing all households in receipt of child benefit, the charge is calculated based solely on the income of the higher-earner in a couple – regardless of who actually receives the benefit, the level of income of the lower-earner or indeed whose child the benefit payments are in respect of.
A ‘couple’ for this purpose includes two people who are living together as if they are married or in a civil partnership, as well as those who are actually married or in a civil partnership (unless separated).
As a result it is possible for the charge to apply where your household income is just £50,100 (in the case where there is a single earner) whereas it is also possible for your household income to be as high as £100,000 and for the charge not to apply (if, for example, each partner earns £50,000).
I’m on a low income and my partner earns over £50,000. How does this HICBC affect me?
As mentioned above, the charge applies to the higher earner in a couple, irrespective of the income of the lower earner. Therefore, as a low-income or non-earning partner you can find yourself a member of a household to which the charge effectively applies, even though it is your partner who has the legal obligation to pay it.
Where the charge applies to your partner, it has consequences for the whole household. The charge clearly reduces the income available to your household, but it can have more subtle and indirect consequences. The most common of these is where, as a household, you decide not to claim child benefit where the charge would apply because there would appear to be no point in doing so. This is especially likely to be the case where your partner would be required to file a Self Assessment tax return as a direct result of the charge. Many people conclude it is not worth this additional administration burden for no financial return.
However, not claiming child benefit in this scenario means that you will miss out on NI credits which are given to child benefit claimants until the child is 12 years old. These can be critical to build entitlement towards a state pension and other benefits, if you do not work or you are not entitled to NI credits on some other basis. Under current rules, it is only possible to backdate child benefit for three months – thus, if you do not claim child benefit and miss out on NI credits as a result, there is no way to claim NI credits retrospectively beyond the 3-month period.
Furthermore, not claiming child benefit will have a consequence for the child, too, as they will not be automatically issued with a National Insurance number when they reach 16. This will mean the child will need to actively obtain one and they may need to undergo a face-to-face interview to do so.
Couples liable to the HICBC are instead encouraged to claim the benefit regardless, and in order to avoid having to pay it back and file a tax return, you can opt not to receive payments. This is done by ticking a box on the child benefit claim form (Question 68, Section 4) or, if child benefit is already in payment, by completing a separate form. However, this is not especially intuitive, despite HMRC improving the guidance on the child benefit claim form.
If you have stopped your child benefit payments because of liability to the HICBC but your circumstances change (for example, you have an unexpected fall in income such that the child benefit is not fully clawed back via the HICBC) then you can restart child benefit payments. You can also request to reinstate payments for the two previous tax years, if applicable, by contacting the child benefit office via telephone. Alternatively, you can contact them by using this online form, but you should be aware that you are not provided with confirmation of the submission. In either case, you should make a note of the information provided.
Is my partner required to file a Self Assessment tax return if he/she is liable to the HICBC?
Individuals affected by the charge are required to register to file a Self Assessment tax return (if they don’t already do so) – even if their only source of income is from PAYE. However, the charge may be collected via PAYE by means of an adjustment to a tax code.
It’s important to emphasise that it is the higher earner in a couple which has the obligation to file a Self Assessment tax return, not the lower earner, even if the lower earner is the one who receives the benefit.
What if my partner was liable to the HICBC in prior years and no Self Assessment tax returns have been filed?
Your partner should contact HMRC straight away and register for Self Assessment so he or she can file tax returns for the years concerned. Where tax (including the HICBC) is unpaid, penalties may be charged for the failure to notify.
Despite an HMRC marketing campaign when the HICBC was first introduced, many of those affected were unaware of this obligation and as a result have received penalties for their ‘failure to notify’. HMRC recently reviewed these penalties for tax years 2013/14 to 2015/16 inclusive, and in recognition of the fact that those not in scope of the HICBC at the time of its introduction may not have taken notice of the marketing campaign, in June 2019 HMRC automatically and retrospectively granted a ‘reasonable excuse’ for the failure to notify in two specific cases: those where child benefit was claimed before the introduction of the HICBC and one partner’s income subsequently rose to over £50,000, and those where a HICBC arose as a result of the formation of a new partnership. This meant that no penalty applied.
For tax years 2016/17 onwards, HMRC have been writing directly to those individuals it believes are affected by the HICBC and therefore it is no longer accepting ignorance of the charge as a reasonable excuse. If you come forward voluntarily, penalties are likely to be lower than if HMRC spot the failure first.