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FAQ#6: What is the High Income Child Benefit Tax Charge?

May 7, 2018

I've had a couple of queries from working parents who are worried about the High Income Child Benefit Charge. Not being a parent myself (apparently bulldogs don't count) its not something that was on my radar but I've done some digging and wanted to summarise the salient points for you:

 

What is the darn thing?

Introduced in 2013, the High Income Child Benefit Charge is not a tax, though it both looks and smells like one. Basically, if either you or your partner earn more than £50,000 and one of you is claiming child benefit, you will be subject to a specific, additional tax charge.

 

How much is it?

Depends on your circumstances, but up to 100% of the child benefit claimed in the tax year. It is calculated as 1% for each £100 of income between £50,000 and £60,000 - capped at 100% if either of you earn £60,000 or more. 

 

So. You claim £1,789 child benefit over the year. Your partner earns £55,000 per annum (in "adjusted" income. More on this below). You will be charged 1% of £1,789 for the £5,000 your partner has earned over the £50,000 threshold. As it is charged per £100, you therefore will pay 50% of the £1,789 received which is £894.50. 

 

If you earn £60,000 or above the charge will be equal to the child benefit claimed


HMRC have set up a calculator here to help you work out how it applies to you. 

 

What is adjusted net income?

Adjusted net income is your total taxable income before any personal allowances and less certain tax reliefs such as trading losses, donations made to charities through gift aid, pension contributions. More information available here if you happen to be interested.

 

Who pays it?

If one of you earns over £50,000, then that person pays it (regardless of who has made the claim). If both of you do, the one with the higher income pays it. 

 

How does it work?

If you fall into this category, the higher earning partner will have to complete a self-assessment tax return. The payment will be collected through this service, or you can opt to have your PAYE code adjusted (if you are an employee) to pay it through your earnings. Some people have been caught out because they did not realise they needed to complete a self-assessment even if they are employed and have no additional income streams.

 

Can I get out of it?

In short, no. You can opt out of claiming child benefit but then you won't get the national insurance credits that child benefit claimants get if they have children under 12 or are a foster carer. HMRC seem to be keen for individuals to continue to claim, even though they will just have to pay the whole amount back. If you want to opt out you will have to contact HMRC on 0300 200 3103, via the HMRC email service or in writing. 

 

If you have any questions about self-assessment or other topics raised in this article get in touch with me on rachel@bulldogaccounting.co.uk

 

 

 

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