Child Benefit and Guardian’s Allowance: High Income Child Benefit Charge
Introduction
What is the charge?
Someone else claims Child Benefit
Calculating the charge
Electing not to receive Child Benefit
National Insurance credits
Paying the charge
Action to take
The legislation
Meaning of ‘partner’
Adjusted net income
Single earner/dual earner unfairness remains
Other problems
HMRC review of High Income Child Benefit Charge penalty cases (November 2018)
ESC A19
Forms
More information
This tax charge was introduced from 7 January 2013. Since that date, individuals who:
-
are single and have adjusted net income for the tax year of more than a certain threshold (see the table below), or
-
have a partner and have adjusted net income for the tax year higher than their partner’s and more than that threshold
are subject to a specific tax charge if they or their partner receive(s) Child Benefit payments. The charge can also apply to an individual if another person claims Child Benefit for a child who normally lives with the individual (see below). This change did not make Child Benefit a taxable benefit – the benefit itself remains non-taxable.
Thresholds and changes from 6 April 2024
|
|
Tax years up to and including 2023/24 |
Tax years 2024/25 onwards |
|
‘Initial threshold’ (point at which the charge begins to apply) |
£50,000 |
£60,000 |
|
Amount of charge |
1% of the Child Benefit received for each £100 above the initial threshold |
1% of the Child Benefit received for each £200 above the initial threshold |
|
‘Upper threshold’ (point at which the charge equals 100% of the Child Benefit received) |
£60,000 |
£80,000 |
For those with adjusted net income between the initial threshold and the upper threshold (as set out in the table above), the charge is a proportion of the annual Child Benefit amount. As adjusted net income increases between these two thresholds, the charge increases to 100% of the Child Benefit payments received in the year. For people whose adjusted net income is equal to or more than the upper threshold, the tax charge is 100% of the amount of Child Benefit payments received.
Anyone affected can still claim Child Benefit because even if they opt not to receive payments, their underlying entitlement can help protect entitlement to State Pension and other benefits (by giving them National Insurance credits) and it also ensures the child will be automatically issued with a National Insurance number as they approach 16 years old.
Claimants who themselves are, or whose partner is, affected by the charge must decide whether to receive (or continue to receive) Child Benefit payments or not. If they choose to receive the payments, then the tax charge must be paid. If they choose not to receive Child Benefit payments, then the tax charge will not have to be paid for a tax year if no Child Benefit payments are received in that year. The best option depends on individual household circumstances and will need careful consideration. If Child Benefit payments continue, either the recipient or their partner (depending on their circumstances) will generally need to declare the payments on a Self Assessment (SA) return, and if they aren’t already in SA they need to register.
What is the charge?
The charge applies to taxpayers who have an adjusted net income over the initial threshold in a tax year, where either themselves or their partner are in receipt of Child Benefit (see below where someone else claims Child Benefit).
If both partners have adjusted net income over the initial threshold, the partner with the higher income is liable for the charge (regardless of which partner is in receipt of Child Benefit).
Someone else claims Child Benefit
In some cases, it is possible to claim Child Benefit for a child who is not living with the claimant if they contribute to the cost of providing for the child an amount equal to or greater than the current weekly amount of Child Benefit. There are rules which determine priority of entitlement where a claim for the same child is made by more than one person (see HMRC’s Child Benefit Technical Manual, CBTM08030). The contribution can be in cash or in kind (for example, providing clothing).
Example
Christine has adjusted net income of £40,000 in 2023/24. She is a single parent and needs to move away for a new job. Her daughter Sarah, age 12, goes to live with Christine’s friend. Christine continues to pay her friend some money towards her daughter’s upkeep. Christine can still receive Child Benefit for Sarah which covers some of the cost of contributions she gives her friend towards Sarah’s maintenance.
This situation can create some complexities in relation to the tax charge. In the example above, if Christine’s friend or her partner has adjusted net income of more than the initial threshold, then the High Income Child Benefit charge might apply to one of them even though Christine’s income is lower.
However, the transfer of liability described above can only happen where neither the Child Benefit claimant nor any partner they have is liable to the charge themselves. So, if Christine’s adjusted net income were £55,000 (in 2023/24), then the charge would apply to Christine rather than her friend, even if her friend’s adjusted net income were higher.
There is some information about claiming Child Benefit under the maintenance rules in HMRC’s Child Benefit manual.
The calculation of the charge is set out in the table above. Note that where the relevant person’s adjusted net income is less than £50,100 (for tax years up to 2023/24) or less than £60,200 (for tax years from 2024/25), the amount of the charge is nil. . The charge on taxpayers with adjusted net income of the upper threshold or more will be equal to the amount of Child Benefit paid.
For example, Child Benefit for two children in 2023/24 is £2,074.80 per year. For a taxpayer whose adjusted net income is £54,000 in 2023/24, the charge will be £829.00. This is calculated as follows:
Step 1: £2,074.80 Child Benefit divided by 100 = £20.74 (which is 1% of the Child Benefit award)
Step 2: £54,000 (adjusted net income) minus the £50,000 threshold for 2023/24 = £4,000 of ‘excess’ income
Step 3: £4,000 divided by £100 = 40 (the number of £100s of excess income)
Step 4: £2,074 (the total Child Benefit award, rounded down to the nearest whole number) multiplied by 40 (the number of £100s of excess income)/100 = £829 (the figure is rounded down to the nearest whole number).
For a taxpayer in 2023/24 whose adjusted net income is £60,000, the charge will be £2,074 (the full amount of Child Benefit paid, rounded down to the nearest whole number).
HMRC have produced a calculator on GOV.UK that calculates the tax charge you or your partner may have to pay.
An individual who has adjusted net income above the initial threshold but who is not receiving Child Benefit themselves will only be liable to the charge in respect of Child Benefit payments made for any period of the tax year during which they are part of a couple with a Child Benefit claimant whose adjusted net income is less than their own. So, if they were only part of a couple with the Child Benefit claimant for 3 months of the tax year, they would effectively only pay one quarter of the annual amount of the charge. The adjusted net income used to calculate the charge is always for the full tax year, however. See also the guidance on the LITRG website regarding the High Income Child Benefit Charge and moving in with your partner and issues on separation.
Electing not to receive Child Benefit
Child Benefit itself is not liable to tax and the amount that can be claimed is unaffected by the charge. It can continue to be paid in full to the claimant even if they or their partner have a liability to the tax charge. Child Benefit claimants can elect not to receive the Child Benefit to which they are entitled if they or their partner do not wish to pay the charge. The claimant may subsequently decide to withdraw that election if they or their partner are no longer liable to pay the charge - this is called revocation.
Normally, the revocation takes effect once it is treated as made which is normally on the Monday after HMRC receive the request to re-start payments. However, a person can ask for their payments to start at an earlier date if:
- They originally elected not to receive payment and did not receive payment for one or more weeks in that tax year
- Had an election not been made, neither the person or any other person, would have been liable for the High Income Child Benefit Charge or the charge for that tax year would be less than the Child Benefit to which the person is entitled (because their adjusted net income is between the two thresholds)
- The request must be made no later than two years after the end of the tax year.
Note that if a person revokes an election after 6 April 2024 (for example, because the increase in thresholds from that date mean that it is financially worthwhile to do so) then any backdated payments which relate to 2023/24 or 2022/23 will be treated as an entitlement for those earlier years. This means that any liability to the High Income Child Benefit Charge will be computed by reference to the lower thresholds which applied in those years. This is in contrast to new claims to Child Benefit which are made between 6 April 2024 and 8 July 2024 (see below for further information).
The following example is based on one from the HMRC Child Benefit manual.
A person with adjusted net income of £30,000 [TH1] decides not to receive their Child Benefit payments for the 2023/24 tax year because they expected their partner’s adjusted net income to be £80,000 in that year. When their partner submits their 2023/24 tax return in December 2024, his actual adjusted net income for the year was £48,000. The person can revoke their election and get the Child Benefit payments they were entitled to receive for 2023/24.
Note that although the legislation suggests that revocation is only possible where it would not trigger any High Income Child Benefit Charge in relation to the backdated payments. However, HMRC’s manual appears to allow revocation in circumstances where the charge is less than 100% of the Child Benefit received.
New claims to Child Benefit on or after 6 April 2024 but before 8 July 2024
Where a new claim to Child Benefit is made on or after 6 April 2024 but before 8 July 2024, entitlement is automatically backdated by three months (provided the claimant is eligible for Child Benefit in that period). For new claims on or after 6 April 2024 but before 8 July 2024, this might mean that some of the backdated entitlement falls in the 2023/24 tax year.
Where this is the case, the amount of the Child Benefit entitlement which would have fallen in the 2023/24 tax year is treated as an entitlement for 2024/25 instead. This aims to prevent a High Income Child Benefit Charge arising for 2023/24.
[TH1]I think we need to be clear what the ANI is of the claimant.
People still need to claim Child Benefit for each child even if they elect not to receive payments in order to preserve entitlement to National Insurance credits that Child Benefit claimants receive if they have a child under 12 or are an approved foster or kinship carer.
The charge is usuallycollected through the Self Assessment system and Pay As You Earn System. This means that the person liable to the charge generally has to complete a tax return (possibly for the first time) and the amount owed will either have to be paid to HMRC by the appropriate deadline or may be able to be collected from the person’s earnings by adjusting their PAYE tax code. However, any individual liable to the charge must usually file a Self Assessment tax return, even if they have already paid the charge via PAYE.
Strictly speaking, the legislation does not directly require individuals who are liable to the charge to file a Self Assessment tax return for any year in which they are liable. However, individuals who are liable to the charge must notify HMRC that this is the case (if have not already received a notice to file a tax return for the year). In response to that notification, HMRC will usually issue the taxpayer with a notice to file a Self Assessment tax return to complete for that year.
If a taxpayer has failed to notify HMRC of their liability to the charge before the relevant deadline, HMRC may use other statutory mechanisms (such as a discovery assessment) in order to collect the tax. This may apply, for example, if HMRC are out of time to issue a notice to file a Self Assessment tax return for that year.
Anyone affected by the High Income Child Benefit Charge should register for Self Assessment (if they are not already registered) and then fill in a tax return for the year(s) affected by the charge.
Child benefit claimants whose adjusted net income exceeds the initial threshold, but who are not liable to the charge because their partner’s adjusted net income is higher, do not need to declare this to HMRC. However, in this situation it is advisable that the claimant retains suitable records to demonstrate this point in case the claimant’s liability to the charge is later questioned by HMRC. Such claimants may wish to declare on their own Self Assessment tax return (if they file one) the reason that the High Income Child Benefit charge section has not been completed. If they do not file a Self Assessment tax return, then the claimant may wish to contact HMRC so that a note can be made on their PAYE record.
The charge is collected through the Self Assessment system and Pay As You Earn System. This means that the person liable to the charge has to complete a tax return (possibly for the first time) and the amount owed will either have to be paid to HMRC by the appropriate deadline or may be able to be collected from the person’s earnings by adjusting their PAYE tax code. However, any individual liable to the charge must file a Self Assessment tax return in every case, even if they have already paid the charge via PAYE.
You can register online via the GOV.UK website or contact the Self-Assessment line on 0300 200 3600 (NGT text relay 18001 0300 200 3600)
Those affected who choose to stop receiving payment of Child Benefit need to tell HMRC. The Child Benefit Helpline is 0300 200 3100 (NGT text relay 18001 0300 200 3100). Alternatively, you can do this via the HMRC email service or via your online account or by writing to the Child Benefit Office:
HM Revenue and Customs - Child Benefit Office
PO Box 1
Newcastle Upon Tyne
NE88 1AA
United Kingdom
Anyone who has opted to have their Child Benefit payments stopped, can submit a request to have payments restart. You can do this via an online form or by contacting the Child Benefit Helpline on 0300 200 3100 or writing to the Child Benefit Office (address above). Payments will usually start again from the Monday after your request is received.
If circumstances change, for example adjusted net income changes or partner moves in or out, tell HMRC to make sure any payments that you’re entitled to or tax that you need to pay are correct. Guidance on what changes to notify and what steps to take can be found on the HMRC website.
The legislation
The legislation for the High Income Child Benefit Charge is in Chapter 8 of ITEPA 2003 (s681B to 681H).
S681G provides the meaning of “partner”
(note this is the same as for tax credits)
(1) For the purposes of this Chapter a person is a “partner” of another person at any time if either condition A or condition B is met at that time.
(2) Condition A is that the persons are married to, or civil partners of, each other and are neither—
(a) separated under a court order, nor
(b) separated in circumstances in which the separation is likely to be permanent.
(3) Condition B is that the persons are not married to, or civil partners of, each other but are living together as if they were a married couple or civil partners.
(2) “Adjusted net income” of a person for a tax year means the person’s adjusted net income for that tax year as determined under section 58 of ITA 2007.
You can find information on how to calculate adjusted net income on GOV.UK.
Single earner/dual earner unfairness remains
Single earner/dual earner unfairness
A common complaint about the charge is sometimes known as the single earner/dual earner problem – for example, families with a single earner on £60,000 in 2023/24 will have the full amount of Child Benefit clawed back, while couples where both partners earn just under £50,000 in 2023/24 will retain their Child Benefit in full.
In order to address this issue, the former Government announced in Spring Budget 2024 that it would move to a system based on household rather than individual incomes by April 2026.
Individuals with an adjusted net income in excess of the initial threshold are required to inform HMRC if they or their partner are in receipt of Child Benefit. In a situation where someone does not know their partner’s income, they will need to use the HMRC enquiry service. They can ask whether their individual adjusted net income was higher than their partner’s/ex-partner’s adjusted net income for a specific tax year. HMRC will answer based on the latest information available to them. More information on making this request is available on GOV.UK. You will need to write to HMRC to make the request for necessary information about your partner so you can decide whether you need to take action regarding the charge.
HMRC review of High Income Child Benefit Charge penalty cases (November 2018)
In November 2018, HMRC advised they were to review High Income Child Benefit Charge cases, and issue penalty refunds, where a 'Failure to Notify' penalty was issued for certain tax years and HMRC find the person had a reasonable excuse for not meeting this tax obligation.
HMRC say they define a reasonable excuse as something that stopped someone from meeting a tax obligation which they took appropriate care to meet, and decisions on what constitutes a reasonable excuse are based on an assessment of individual circumstances.
The review concluded in June 2019 and HMRC automatically granted a reasonable excuse to taxpayers who were issued with ‘Failure to Notify’ penalties for 2013/14 to 2015/16 inclusive in the following two scenarios:
Families that claimed Child Benefit before the High Income Child Benefit Charge was introduced and where one partner’s adjusted net income subsequently increased to over the initial threshold;
Families where the liability to the High Income Child Benefit Charge arose in either 2013/14, 2014/15 or 2015/16 as a result of the formation of a new partnership.
Further information about the review is available on GOV.UK.
Taxpayers continue to claim ‘reasonable excuse’ against failure to notify penalties on the basis of their ignorance of the law. Many such cases have been heard by the First-Tier Tribunal on this point and some taxpayers have been successful – especially where HMRC have been unable to demonstrate that they have written to the taxpayer about the charge (see paragraph [38] of Hussain v HMRC [2023] UKFTT 545 (TC)).
If HMRC did not act on information they were given, in certain circumstances taxpayers with tax arrears can ask for the tax to be written off under extra-statutory concession A19. There are strict conditions which must be satisfied if HMRC are to apply the concession.
Where HMRC have issued discovery assessments in order to assess the High Income Child Benefit Charge for previous tax years, we are aware that some taxpayers have attempted to argue that ESC A19 should apply. This is on the basis that HMRC should have already been aware that the individual was earning above the initial threshold (from PAYE information already held) and the fact that they, or their partner, were a Child Benefit claimant (from Child Benefit Office records – which is in fact part of HMRC). However, we are not convinced that the concession technically applies in these cases, because it does not appear to cover a failure to match up PAYE records with Child Benefit records. We are also aware that HMRC are resisting taxpayers’ attempts to apply it, despite some attempts reaching the Adjudicator. See, for example, case study 8 (page 30) in the Adjudicator’s Office annual report 2019.
However, this does not mean that ESC A19 can never apply in respect of the High Income Child Benefit Charge. HMRC’s Self Assessment Manual at SAM101120 expressly mentions that the High Income Child Benefit Charge can be considered under the concession. It will depend on the circumstances of the particular case.
Discovery Assessments
Alongside consideration of ESC A19, taxpayers in this situation should always ensure that any discovery assessments relating to the High Income Child Benefit Charge are validly issued, in time, and based on accurate figures of adjusted net income and Child Benefit received.
In Wilkes v HMRC [2020] UKFTT 256 (TC), the taxpayer successfully argued that the discovery assessment was not valid, on the basis that there was no income which ought to have been assessed that was not assessed (as neither the charge nor the Child Benefit is taxable income). HMRC appealed, but the decision was upheld in June 2021 by the Upper Tribunal in HMRC v Jason Wilkes [2021] UKUT150 and again by the Court of Appeal in HMRC v Jason Wilkes [2022] EWCA Civ 1612 HMRC did not seek permission to appeal further to the Supreme Court, so the Court of Appeal decision is final.
However, the Government introduced legislation in s97 Finance Act 2022 to put beyond doubt that HMRC is able to use discovery assessments in order to collect the High Income Child Benefit (and other standalone tax charges). The legislation also has retrospective effect for discovery assessments which have already been issued, though taxpayers who had appealed prior to 30 June 2021 using the same basic argument as Mr Wilkes are carved out of the changes.
HMRC have a number of online forms that you can use in relation to the High Income Child Benefit:
- Stop your Child Benefit payments – Use this form if you want to stop payment of your Child Benefit so that you no longer have to pay the tax charge.
- Restart your Child Benefit payments – Use this form if you want to restart your Child Benefit payments after choosing to stop them.
- Request for information – Use this form to find out if your partner gets Child Benefit or has a higher income than you to find out if you have to pay the charge.
- Authorise a tax adviser for High Income Child Benefit issues – Use this form to authorise your tax adviser to act for you in relation to Child Benefit tax charge.
More information and guidance about election and revocation can be found in the HMRC Child Benefit manual.
The GOV.UK website also contains some basic information about the charge.
There is also a House of Commons Library Research Briefing on the charge, which was updated on 28 May 2024.
Last reviewed/updated 16 July 2024