Financial focus on high income child benefit charge reviews

HMRC are currently undertaking compliance checks for those who should be paying the High Income Child Benefit Charge (HICBC) but, HMRC suspect, are not.

The tax charge applies to anyone (including your spouse or partner) who claims child benefit and whose adjusted net income exceeds £50,000 annually.  (Where both spouses/partners exceed £50,000, the HICBC is levied against the partner with the higher income).

The charge is equal to 1% of the child benefit received by the household for every £100 of adjusted net income received above £50,000 so that by the time you reach £60,000 income, the Child Benefit has been reclaimed by the government. 

HICBC has existed for two decades but now HMRC have started using their “Connect” computer system to link child benefit records, P60s and Tax Returns (if filed) to addresses to determine whether and where there are individuals who should be paying but are not. 

If you know for certain that your salaried income for a tax year will exceed the £60,000 upper limit, to avoid both the HICBC tax charge and possibly having to file a Tax Return purely for this reason, some parents are simply not claiming the Child Benefit in the first place.  However as you can only backdate a claim for Child Benefit for three months, if you later find that your income has dropped (for example for a period out of work, or as a result of a downturn in self-employment profits) you may find that the approach of not claiming from the start of the tax year will ultimately deny you child benefit that you may otherwise have been entitled to.  Therefore, for some taxpayers, it is better to claim the child benefit and then pay back overpayments under the HICBC system, despite the additional aggravation that this may cause.

If your income has exceeded £50,000 and you have not paid any HICBC that you ought to have, it is better to tell HMRC and correct your affairs voluntarily rather than HMRC discovering something themselves.  A “prompted declaration” (only admitting to something after HMRC has enquired about it) is always looked upon less favourably than a voluntary declaration should penalties become involved.