Introduced by HMRC in 2013, the High Income Child Benefit Charge applies to parents earning over £50,000 adjusted income per year. Total taxable income less pension contributions and gift-aid donations give the adjusted net income figure. HICBC places a tax charge of 1% on child benefit for each £100 above the £50,000 threshold the high-earner makes. This means that those earning £60,000 or above will receive no child benefit.
There have been criticisms since the tax charge was introduced. Primarily it appears to be levied unfairly. Households with two parents earning £45,000 per year who therefore have a joint income of £90,000 aren’t liable for the charge whereas a household with only one high earner of £55,000 is liable.
It has now emerged that a number of households have unwittingly found themselves with huge, unexpected tax bills. Where one parent’s income has risen above the threshold and not realising they would now be impacted by this charge. The situation has been made more confusing because the household’s high earner is not necessarily the same person who claims child benefit.
HMRC announced on 1 November 2018 that it was reviewing some cases. Where a failure to notify penalty was issued for three tax years (2013/14, 2014/15, and 2015/16) and the taxpayer had a reasonable excuse for not meeting their HICBC tax obligation. The charge is still due for these years but in some cases the penalty may be refunded.
The review will not include anyone who received communications from HMRC about High Income Child benefit charge. Or those who made a new claim for child benefit after the charge was introduced in 2013.
It is important that high earning parents check their child benefit eligibility as soon as possible.
An HMRC spokesperson said: ‘When HICBC launched in 2013, HMRC ran a high profile advertising and media campaign writing to approximately 800,000 affected families. The campaign included a prominent message about the charge in two million letters to PAYE-only higher rate taxpayers. HMRC has also put an online calculator on gov.uk to enable people to work out if they are affected.
‘Additionally HMRC has enhanced its communication of the importance of non-monetary benefits of claiming child benefit. HMRC are raising awareness of HICBC on social media and reaching out to employers asking them to encourage their staff to check if they are liable for HICBC by using employer bulletin publications.
‘HMRC has written to people who may have failed to tell the department that they are liable to the HICBC. The letters ask them to check if they are liable and, if so, file self assessment returns.
‘Those who are contacted and then ignore the rules face a penalty unless they have a reasonable excuse and something stopped them meeting their tax obligation. We want our customers to get the benefits they’re entitled to – we don’t want to charge penalties.’
HMRC said High income child benefit charge is not charged on a household basis. Looking at total household income would mean finding out the incomes of everyone in each of the eight million households receiving child benefit, effectively introducing a new means test.
More information on the HICBC penalties review here.
Feel free to contact us if you are affected by the High Income Child Benefit Charge. 01872 267267