High Income Child Benefit Charge

May 8th, 2024 | Posted in Self Assessment, Tax Planning

YThe ‘High Income Child Benefit Charge’ (HICBC) means that high earning parents are entitled to either a reduced child benefit or no benefit at all.  This affects those families where one parent earns earns ‘adjusted net income’ above a specific threshold as outlined below. The adjusted net income includes all sources of taxable income less any pension contributions and charitable donations made under the gift aid scheme.

Thresholds for tax years up to 2023-24

A household that received child benefit between 6 April 2023 and 5 April 2024 where one parent earned ‘adjusted net income’ of £50,000 or more may need to pay some or all of the benefit back. The benefit is withdrawn at a rate of 1% per £100 of income over £50,000. This means that if a parent earned £60,000 or more then all of the child benefit must be paid back. The parent with the higher income would need to pay the child benefit back by completing a 2023-24 tax return even if it was the lower earning parent that actually received the benefit. 

The deadline for submitting the tax return and paying the high income child benefit charge to HMRC is 31 January 2025.  However, those individuals that have not needed to complete a tax return in the past will first need to register for self assessment. HMRC must be notified of the need to complete a 2023-24 tax return by 5 October 2024 to avoid having to pay a penalty.

Thresholds from 2024-25

The thresholds for the HICBC remained the same from its introduction in January 2013 to 5 April 2024. From 6 April 2024, the threshold increased to £60,000 and the rate at which it is withdrawn has changed to 1% per £200 of income over £60,000.  This now means that the child benefit isn’t fully clawed back until income is £80,000 or more.  More families will therefore be eligible for the benefit where they may not previously have been.

The charge will not be applicable to households for the 2024-25 tax year if they opted out of child benefit before 6 April 2024 or those in which no individual earns more than £60,000. Parents who have previously either not claimed the benefit at all or opted out but may now be eligible to retain some or all of the benefit are advised to make a claim or revoke previous elections to opt out of the benefit.

Individuals that know they won’t be entitled to any child benefit for the next 2025-26 tax year may wish to opt out of the payments by 5 April 2025 to avoid having to file a 2025-26 tax return and repaying the benefit.  Note that we always recommend filling in the child benefit claim form for each child and then opting out of payments as the initial child benefit registration provides national insurance credits to the parent making the claim, which counts towards state pension eligibility.  Claiming child benefit also means that the child will automatically receive their national insurance number once they turn 16 rather than having to remember to apply for one.

Will be live tweeting tax updates from the Budget here. Wonder if there will be anything new to report or if it's all been leaked...

Today, we’ve published new guidance for any postmasters who received Horizon Shortfall Scheme compensation between 6 April 2022 and 5 April 2023, and are waiting for top up payments to cover any tax liability. Find out more ⬇️

Ended the first week of 2024 with HMRC late filing penalties and interest successfully cancelled for a new client. Started the second week of 2024 with confirmation that an HMRC enquiry for another client is to be closed with no further action. Winning at 2024 so far!

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