Tax on Child Benefits

Many people in the UK don’t have to worry about submitting an annual tax self-assessment form because their only sources of income tend to be their salary and interest income, which until recently was negligible.

All this changes once a person has their first kid and starts receiving child benefits. This is the moment when HMRC starts sending letters with recommendations to register for self-assessment to make sure a person is not caught by the High Income Child Benefit Charge (HICBC).

What is High Income Child Benefit Charge?

HICBC is a practice by the tax system to claw back some or all of the child benefits provided to parents who are deemed to be having a high income. There are two trigger income levels that initiate a claw back for HICBC.

The first one is at £50,000. If a parent has a net adjusted income between £50,000 and £60,000, they are expected to pay back a portion of the received child benefits. The claw back is proportionate to how close is the net adjusted income to the upper level of £60,000.

Naturally, the second trigger level is £60,000. If a parent earns more than that amount, then the entire child benefit has to be returned after the submission of the tax self-assessment.

What is the net adjusted income?

The net adjusted income is a computation that sums up all income received during a tax year (for example salary and interest as most common sources of income) and from that subtracts allowable deductions (e.g. pension contributions)

Is net adjusted income for a household?

The way the law on HICBC is written considers the net adjusted income of the higher earning parent while the overall household income is not at all considered. Thus, a tax self-assessment is important for the correct consideration and HICBC calculation.

Do I have to pay back child benefits if I earn over £50,000?

Not necessary. In fact, you could even keep the full amount, depending on your personal circumstances. As the HICBC is applied on an individual’s net adjusted income, not on their headline salary, the allowable deductions could bring the net adjusted income to below the £50,000 threshold. Thus, it is paramount to stay on top of your finances during the year to be able to get to the final figures to see whether you need to pay back or not.

If I earn over £60,000 should I claim child benefits?

Registering an entitlement for child benefits has merits that go beyond the tax system. First of all, the benefit could provide a safety net should the high earning parent loses their income. Furthermore, receipt of child benefits helps to build an one’s NI credit that would come into at retirement. Registering for child benefits ensures that a child will receive their National Insurance number just before they turn 16, meaning not bothering to register the entitlement could actually cause major headaches for the child in the future.

It is also vital to remember one’s net adjusted income could be below that the £60,000 threshold level after the allowable deductions, so a portion of the benefit could be in fact kept.

What is the deadline on HICBC?

HICBC is reported as part of your tax self-assessment. The deadlines are 31 October after the end of the tax year, if you submit a paper version of your self-assessment and 31 January for an online filing.

How do I report and pay back any HICBC?

The HICBC is calculated as part of your annual tax self-assessment. If you submit your self-assessment online, you will get a payment link from HMRC in which you can pay any outstanding amounts.

Can I get a help with HICBC and submit my taxes?

Of course, just contact us on the link below and we can have a FREE initial call to discuss your personal circumstances.