It has recently been announced that as more individuals are moving into the higher tax rate the government is planning to change to how the High Income Child Benefit Charge (HICBC) is applied in order to reduce the administrative burden for taxpayers.
Currently a higher earning taxpayer who is affected by the HICBC must register for self-assessment and submit a tax return every year in order to pay the charge. The proposals are to remove this requirement and instead for the charge to be deducted directly from salaries via PAYE. Details of the proposed charges are still to be confirmed but it does suggest that those individuals only in self-assessment due to a high income child benefit charge may not have to file a tax return in future.
The HICBC applies where an individual or their partner have an ‘adjusted net income’ in excess of £50,000 they or their partner receive child benefit.
The charge can apply even if the child living with the individuals is not their own child, and it works by withdrawing the child benefit by means of an income tax charge. The result is that an individual may have to pay back some or all of the child benefit received during the tax year.
‘Adjusted net income’ is an individual’s total taxable income before any allowances or reliefs such as gift aid. For taxpayers with income between £50,000 and £60,000 there is a taper, so that the charge is a proportion of the child benefit received. For income above £60,000, the charge is equal to the full amount of child benefit received.
Under the current rules, where the HICBC applies, it is the individual in the household with the higher income who is responsible for paying the charge. They must register for self-assessment and submit a tax return every year in order to pay the charge. The aim of the proposed change is that those individuals who have relatively straightforward tax affairs and who would not otherwise need to be registered for self-assessment may no longer need to file a tax return if the HICBC can be deducted from their salary via PAYE. This would help to reduce the administrative burden for such taxpayers and potentially save them money if they pay someone else to prepare and file their tax return.
There are currently no further details of how the proposals would work in practice or the notification process for taxpayers.
For those individuals who currently fall within the HICBC regime, then until any changes are formalised they must still pay any tax charge at the end of the tax year. Alternatively they could choose to opt out of receiving the child benefit in order to avoid paying the tax charge.
If you would like further information on the application of the HICBC or how it may impact you, please speak to your usual contact at the firm/please contact our Tax Director, Jenny Marks.
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