Child Benefit and Guardian’s Allowance: High Income Child Benefit Charge
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
Meaning of ‘partner’
Adjusted net income
Single earner/dual earner unfairness remains
HMRC review of High Income Child Benefit Charge penalty cases (November 2018)
This tax charge was introduced from 7 January 2013. Since that date, households who receive Child Benefit where the Child Benefit claimant or their partner’s income is £50,000 or over are subject to a specific tax charge if they continue to receive Child Benefit payments. This also applies if another person claims child benefit for a child who normally lives in the high income household (see below). This change does not make Child Benefit a taxable benefit – the benefit itself remains non-taxable.
For those with income between £50,000 and £60,000, the charge is less than the annual Child Benefit amount but gradually increases to 100% of the Child Benefit payments and for people whose income is more than £60,000, the tax charge is 100% of the amount of Child Benefit.
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 affected by the high income 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. But 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 need to declare the payments on their 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 £50,000 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 £50,000, the partner with the higher income is liable for the charge (regardless of which partner is in receipt of 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 1 person. (see HMRC’s Child Benefit Technical Manual, CBTM08030). The contribution can be in cash or in kind (for example providing clothing).
Christine 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 have adjusted net income of £50,000 or more, then the High Income Child Benefit charge (HICBC) might apply even though Christine’s income is lower. In other words, this means that those with income over £50,000 who live with a child and who receive at least the value of child benefit directly or indirectly from the child benefit claimant are in the same position as someone with income over £50,000 who lives with a child and claims, or whose partner claims, child benefit.
There is some information about claiming child benefit under the maintenance rules in HMRC’s child benefit manual.
The charge applies at a rate of one per cent of the full child benefit award for each £100 of income between £50,000 and £60,000. The charge on taxpayers with income above £60,000 will be equal to the amount of child benefit paid. For example, child benefit for two children is £1,789 per year. For a taxpayer whose income is £54,000, the charge will be £708. This calculated as follows:
Step 1: £1,789 child benefit divided by 100 = £17.89 (which is 1% of the child benefit award)
Step 2: £54,000 (adjusted net income) minus the £50,000 threshold = £4,000 of excess income
Step 3: £4,000 of excess income divided by £100 = 40 (the number of £100s of excess income)
Step 4: £17.89 (1% of the child benefit award) multiplied by 40 (the number of £100s of excess income) = £715
For a taxpayer whose income is £62,000, the charge will be £1,789 (the full amount of child benefit paid).
HMRC have produced a calculator on the GOV.UK website that calculates the tax charge you or your partner may have to pay.
An individual who has income above £50,000 but who is not receiving child benefit themselves will only be liable to the charge for any period of the tax year during which they are living with a child benefit claimant whose income is less than their own. So if they were only living 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.
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 new 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 HICBC or the charge for that tax year would be less than the Child Benefit to which the person is entitled (because their income is between £50,000 and £60,000)
- The request must be made no later than two years after the end of the tax year.
HMRC give the following example of how this works in their Child Benefit manual.
A person decides not to receive their Child Benefit payments for the 2016-2017 tax year because they expected their partner’s income to be £80,000 in that year. When their partner submits their 2016-2017 tax return in December 2017, his actual 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 2016-2017.
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 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.
Anyone affected by the HICBC who chooses to carry on receiving Child Benefit payments needs to declare the amount of Child Benefit they or their partner receive, by registering for Self-Assessment (if they are not already registered) and filling in a tax return each year.
You can register online via the GOV.UK website or contact the Self-assessment line on 0300 200 3600 (Textphone 0300 200 3603)
Those affected who choose to stop receiving payment of Child Benefit need to tell HMRC. The Child Benefit Helpline is 0300 200 3103. 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
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 3603 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 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 for the ‘high income child benefit charge’ was introduced in the Finance bill 2012 (clause 8 and schedule 1) and is now the Finance Act 2012.
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 any of conditions A to D is met at that time.
(2) Condition A is that the persons are a man and a woman who are married to 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 a man and a woman who are not married to each other but are living together as husband and wife.
(4) Condition C is that the persons are two men, or two women, who are 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.
(5) Condition D is that the persons are two men, or two women, who are not civil partners of each other but are living together as if they were 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 the GOV.UK website.
The proposal does not address the single earner/dual earner problem – for example, families with a single earner on £60,000 a year will have the full amount of child benefit clawed back, while couples where both partners earn just under £50,000 will retain their child benefit in full.
The only way to address this problem would be to introduce some form of household means test. However, the Government has said repeatedly that it has no intention of doing so.
Individuals with an income in excess of £50,000 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 partners 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 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 the GOV.UK website. You can use an online form to make a request for necessary information about your partner so you can decide whether you need to take action regarding the charge.
In November 2018, HMRC advised they were to review HICBC 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.
Normally customers have to explain why they have a reasonable excuse, however in this case they will not need to do so. From November 2018 HMRC will proactively review cases and will issue the penalty refunds, where due, over the subsequent six months.
The review covers cases where families made a claim for Child Benefit before HICBC was introduced, and where one partner's income subsequently increased to over £50,000 in or after the 2013/14 tax year. This is because the higher earner in a household who pays the charge may not be the same person claiming Child Benefit on behalf of the household. However, the review will not include anyone who received communications from HMRC about HICBC or claimed Child Benefit after the charge was introduced in 2012/13.
Further information about this exercise is available on the GOV.UK website.
HMRC have a number of online forms that you can use in relation to the HICBC:
- 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 HICBC 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.
Last reviewed/updated 2 November 2018