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.
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.
By not claiming the child benefit, an individual may create a gap in their National Insurance record which could impede their ability to claim state benefits in the future i.e. state retirement pension.
It is possible to make a claim for child benefit but elect not to receive the payments. This enables the claimant to receive their NIC credit without having to repay anything.
It is important to note that only the claimant will receive the NIC credit for the year and so care must be taken to ensure that the lower/non-earner makes the claim to give them the credit rather than the higher earner.
Finally, if the HICBC does apply to the higher earner, they should register for and prepare a self-assessment tax return in order to declare the charge. Taxpayers required to file a tax return for 2018/19 should register to do so by 5th October 2019.
If you require assistance in claiming child benefit or for further information on the high income child benefit charge, please contact our Tax Director, Jenny Marks.
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