The High Income Child Benefit Charge (HICBC) starts on 7 January 2013. The new charge will be imposed if a taxpayer’s, or their partner’s, income is more than £50,000 in a tax year, where they or their partner are in receipt of the child benefit.
Taxpayers earning more than £60,000 and in receipt of child benefit only have until 6 January 2013 to opt out of receiving the benefit, to prevent the benefit from being clawed back at the end of the tax year.
Taxpayers with income of more than £60,000, will incur a tax charge of 100% of the amount of Child Benefit. Those with income between £50,000 and £60,000 will incur a proportionate charge.
It is therefore now the time to decide whether to keep receiving Child Benefit and pay the charge through Self Assessment, or stop receiving Child Benefit and avoid the later charge. Care should be taken, however, as receipt of Child Benefit can currently be used to determine qualifying years for the state pension for those taking time out of work to bring up children.
In addition, if income is less than £60,000, the tax charge will always be less than the amount of Child Benefit, so a couple could lose money to which they are entitled if they choose to stop receiving Child Benefit and their income dips below the £60,000 mark.
If you keep receiving Child Benefit and you or your partner earn over £50,000 then you should lay plans of how to pay the benefit back and make sure that you file a tax return for the year in question.
From 7 January 2013, where a person earns more than £50,000 and they or their partner claim child benefit, a tax charge will apply in the form of the child benefit high income tax charge. The charge will apply to the person with the highest net adjusted income – which may not be the recipient of the child benefit.
The effect of the child benefit high income tax charge will be to apply a tax liability via the self-assessment tax return system. The amount of the charge will be tapered where the child benefit recipient or their partner earns between £50,000 and £60,000, with the effect that once income reaches £60,000 the entirety of the child benefit payment will be reclaimed through the tax charge.
There are a number of areas where care should be given:
1. The charge applies where either the person claiming child benefit or their partner earns more than £50,000. Therefore it will be necessary to consider the earnings of a taxpayer’s partner. The charge will apply to the person with the highest net adjusted income – which may not be the recipient of the child benefit.
2. The child benefit high income tax charge applies from 7 January 2013 therefore a tax liability could arise in relation to the current (2012/13) tax year with the tax being due for payment by 31 January 2014.
3. Where a person is required to make payments on account, this will include any tax arising as a result of the child benefit high income tax charge thus increasing the tax payable at 31 January and 31 July respectively.
4. Where a person earns more than £60,000 it may be preferable to elect not to receive the child benefit payment (known as a ‘nil award’)
5. Claiming child benefit can protect eligibility for the state pension by way of an NIC credit. Therefore taxpayers earning more than £60,000 that do not currently receive child benefit but become eligible in the future should ensure that they do register for child benefit initially and then elect to receive a nil award so as to preserve this protection.