Households that include higher earners need to be aware of the rules now. You will be affected by the High Income Child Benefit charge (HICBC) if you, or your partner, have an individual income of more than £50,000 and one of you is receiving Child Benefit. The changes may also apply if someone else receives Child Benefit for a child who lives with you.
You will be affected by the changes if during a tax year any of the following applies to you:
• You have an individual income of more than £50,000 and are entitled to receive Child Benefit
• You have an individual income of more than £50,000 and live (or have lived) with a partner who’s entitled to receive Child Benefit
• Both you and your partner have an income of more than £50,000 per year, you have the higher income and one of you is entitled to receive Child Benefit
• You have an individual income of more than £50,000 and both of the following apply:
– Someone else is entitled to receive Child Benefit for a child who lives with you; and
– They are entitled because they contribute at least an equivalent amount towards the child’s care
It doesn’t matter if the child who is living with you is not your own child.
Who is not affected?
You won’t be affected if you and your partner each have an individual income below £50,000 for a tax year; or neither you nor your partner is entitled (or has been entitled) to receive Child Benefit.
Options if you are affected
If you are affected, you have two options:
1. Keep receiving Child Benefit payments – but if you do you will need to declare the amount you or your partner are entitled to by filling in a tax return each year and registering for Self Assessment if you haven’t done so already.
2. Tell the Child Benefit Office that you want to stop receiving Child Benefit payments – in which case you won’t be liable for the new tax charge and won’t need to fill in a tax return (unless you need to for other reasons).
How the charge is calculated.
Individual’s adjusted net income is £54,000 and that person is entitled to Child Benefit for two children.
The tax charge will be worked out as follows:
Step one: income over £50,000 = £4,000
Step two: Child Benefit for two children from 7th January 2013 to 5th April 2013 = £1,752.40 x 3/12 months = £438
Step three: determine the percentage rate to be applied to the result from step one, so £4,000 ÷ 100 = 40 (%)
Step four: £438 x 40% = £175
The tax charge for 2012/13 will be = £175
How to pay the Tax Charge
If you are liable for the High Income Child Benefit charge you can choose to pay it in a lump sum through Self Assessment or you can choose to pay it through your tax code from 6th April 2013.
But if you choose to pay the tax charge through your tax code, you will still need to complete a Self Assessment tax return.