High income child benefit charge

The High Income Child Benefit charge will be introduced from 7 January 2013. You may be liable to this new tax charge if you, or your partner, have an individual income of more than £50,000 and one of you gets Child Benefit or contributions towards the upkeep of a child.

HMRC at present are writing to people who they believe will have income in excess of £50,000 in the current tax year and who may therefore be liable to pay the HICBC. HMRC will probably have identified this population by cross matching data with that on people who claim child benefit (CB) at the same address. This means that some people may receive the letters and not actually need to pay the HICBC; conversely, some people who have to pay it, might not get a letter. It all depends on the quality of the data used and whether the make-up of the household has changed recently.

What is clear is that it is not primarily those who receive CB who will be written to, and yet it is these, usually mothers, who may need to take action before 7 January 2013 if they want to opt out of receiving the payments.

Calculation of the charge

The HICBC introduces escalating marginal rates of tax on income between £50,000 and £60,000. For every £100 of extra income over £50,000, the liable taxpayer must pay 1% of the benefit recipient’s CB for the year.

How will the charge be levied?

Where there is more than one person in a household with income over £50,000, the charge applies to the person whose income is higher. This person may in fact not be a natural parent of the children, and the couple may not be married, but this is irrelevant.

The letter being sent to taxpayers talks about a person having an ‘individual income’ in excess of this amount (this includes all sources of taxable income, not just earnings).

The person with the higher income must ask for a self assessment tax return unless they already receive one. The first tax return affected will be for the current year, 2012/13, and will only have to show a HICBC for CB received after 7 January 2013. It will be payable by 31 January 2014. Of course in future years when it will be based on a full year’s CB receipts, the charge will be much greater.

Avoiding the charge

If the larger individual income is over £60,000, it may be advisable to ask the person currently receiving CB to opt not to continue to do so, since the CB will all be clawed back anyway, albeit from someone else. This could avoid the person with the higher income engaging with the self assessment system unnecessarily.

Note however, that this claim to opt out can only be made by the person who is paid CB. The current online form does not make this very clear.

The claim can be made online or by post and should be made before 7 January 2013 if it is to take effect from the outset of the new regime.

HMRC has said that all claims will be acknowledged, although as the process is not automated, end to end, we recommend checking that the payments do actually stop in January.