High Income Child Benefit Charge

Charterbridge

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High Income Child Benefit Charge

Date posted: Tuesday, February 11, 2014.

 

The High Income Child Benefit Charge (HICBC) was introduced on 7 January 2013 – meaning the 2012/13 tax year is the first year where individuals are affected by this new charge.

Parents effectively had the option of ‘opting-out’ from receiving Child Benefit to avoid being subject to the new charge or continue to receive it and be charged accordingly. While many parents made the decision to opt-out, a large number have continued to receive it and as a result have repaid the money as extra tax via the self-assessment system, according to HMRC.

The charge is calculated based on the taxpayer or taxpayers partner’s income which is between £50,000 and £60,000 – the amount of the charge will be a 1% deduction of the amount of Child Benefit for every £100 of income which exceeds £50,000. Therefore, the whole amount will be subject to the charge where income exceeds £60,000 i.e £60,000 – £50,000 = £10,000/100 = 100%.

The total benefit is calculated based on the weekly amounts received up to the end of the tax year – 2012/2013.

From 7 January 2013, for those with two children this is as follows:

£
£20.30 x 13 weeks 263.90
£13.40 x 13 weeks 174.20
Total 438.10

 

For the current tax year, for those with two children this is as follows:

 

£
£20.30 x 52 weeks 1055.60
£13.40 x 52 weeks 696.80
Total 1752.40

 

So, families with two children, where one partner had income in excess of £60,000 would be required to repay £438 for the three month period in which the charge applies. Those same families will owe £1752 for the current tax year. However, unless parents ticked a box during the self-assessment process the default position is to start collecting money immediately from pay packets by providing the employer with a new tax code. HMRC has said that this should not result in payroll departments handing over the full amount of £1752 – the money should be clawed back more slowly. However, it appears that confusion has arisen due to taxpayers receiving coding notices which suggest that a large adjustment would be made in this year’s personal allowance. It is therefore vital that coding notices are checked to ensure the correct code has been applied.

 

COMMENT:

 

For those whose total income is in the £50,000- £60,000 bracket there might be action that can be taken to avoid the HICBC. For example, payments to a pension scheme – either directly or via a salary sacrifice scheme which will help reduce adjusted net income and therefore the potential tax charge.