High Income Child Benefit Charge
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|
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|
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.
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.