The high income child benefit charge (HICBC) was introduced in January 2013 to restrict the amount of child benefit that higher earners and their partners can receive. If one partner has an adjusted net income (broadly taxable income less trading losses, gift aid and pension contributions) of more than £50,000 and the couple receive child benefit then they will have to pay back some or all of the child benefit received in the year.
The HICBC is calculated as 1% of the child benefit for every £100 of the higher earner’s income over the threshold. If adjusted net income exceeds £60,000, all of the child benefit should be repaid.
During October 2023 HM Revenue & Customs (HMRC) have begun writing to tax agents and accountants warning them that they have identified discrepancies between information on their clients tax returns and information they hold from other sources. This follows a cross-referencing exercise by HMRC to check instances where taxpayers are claiming child benefit but not then paying the annual charge.
The letter from HMRC flags potential self-assessment errors in 2021/22 tax returns relating to HICBC as well as P11D expense claims and P14 end of year employee reports submitted by employers.
HMRC is focusing on claims for child benefit by high earners with income over £50,000 and has found mistakes relating to claims where the additional child benefit charge should have been paid. The purpose of contacting the agent is so that HMRC and the agent can discuss the taxable benefits, PAYE details, or potential HICBC liabilities of specific clients without the need for a formal enquiry. The emphasis is on working together to get clients’ tax correct and HMRC have confirmed that a penalty will not be charged if a voluntary amendment is made by 31 January 2024, being the deadline to amend the 2021/22 return. If an amendment is required and one is not made by this date HMRC will review the position and consider issuing a discovery assessment and charging a penalty.
Since the introduction of the HICBC, a large number of taxpayers have stopped claiming child benefit on the basis that earnings are over the threshold and they would just have to repay the benefit. This can cause a problem when the lower/non-earning partner does not pay National Insurance contributions (NIC’s) for the year. Claiming child benefit gives entitlement to Class 3 voluntary NIC credits which count towards their National Insurance record so any decision to stop claiming should be carefully considered.
If you require assistance in claiming child benefit or are concerned if you have appropriately declared any charge, please contact our Tax Director, Jenny Marks.
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