The High Income Child Benefit Charge tug of war

3 min read
13 Aug 2021

In 2013, The High Income Child Benefit Charge (HICBC) was introduced. The government wanted to reclaim any child benefit given to households where one parent/guardian earned more than £50,000 per year. This puts you into HMRC’s bracket of high earners. But many families had no idea that this change took place so now owe HMRC a backdated bill.

Since 2013, HMRC have been able to reclaim £2.5 billion in HICBC payments, and the government has saved £4.3 billion from high earner families opting out of the payments. Within this period, HMRC have doubled down on compliance checks, doubling those they investigated between 2018/19 to 2019/20.

But – plot twist – a tribunal ruled in July 2021 that HMRC could in fact not reclaim backdated payments from a man, John Wilkes, who pushed back on his £4,000 bill. In turn, this has caused more people to call for refunds.

So let’s start from the beginning. How did we get here?

What was controversial?

There are three elements to this the High Income Child Benefit Charge that aren’t popular.

1. The rules

What makes you liable to pay the HICBC?

One partner in a household earns more than £50,000
As the highest earner in a household, it’s your responsibility to declare your liability – HMRC won’t notify you themselves
The children don’t need to be yours to be liable
If you move in with a new partner, you become liable
You can be chased even if you temporarily move in with a new partner then split up

2. “Discovery”

HMRC are backdating bills and using their powers of “discovery” to do it. “Discovery” is a term that refers to HMRC’s ability to reopen closed periods and issue bills for times that have passed. This means that if you or your partner have been claiming child benefit and you only discover on reading this article that you’re liable to pay, your charge will be backdated to 2013 😱

3. The parameters

The charge has been the same since 2013, despite the fact that the parameters that make you a high earner have changed. It’s pretty controversial.

In 2013, you had to earn £42,475 to be taxed on the higher rate (40%), and a ‘high earner’ was £7,525 above that at £50,000.

Today, the higher rate limit has risen to £50,270, but the HICBC still starts at £50,000. This means that some basic rate taxpayers are liable to pay the High Income Child Benefit Charge. For every £100 of income over £50,000, you pay 1% of the Child Benefit back until your income reaches £60,000. At this point, you pay the whole thing back.

How does the High Income Child Benefit Charge work?

How much is the child benefit?

The benefit is £24 per week for your eldest child, and £15.90 for each of your other children.

I think I owe money – what should I do?

First and foremost, you can opt out of receiving child benefits. This won’t clear your bill but it will stop it from accruing.

Next, to calculate what you already owe, we’ve got a HICBC calculator below that you can use ahead of getting in touch with HMRC. They will usually ask you to pay the backdated charges at the end of the tax year.

Child benefit you have already received

£1,095

Child benefit you were entitled to

£1,095

Tax to pay

£0

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How your child benefit is calculated

The child benefit is simply a payment that the UK government can give to any parent who has children under the age of 16.

How much you get depends on:

how many children you have
and how much you earn: if you earn over £50,000 this benefit is reduced.

Child benefit breakdown

You have 1 child

You get £20.70 per week for your child.

In total that’s £1,095 per year.

That said, if the case of John Wilkes teaches us anything, it’s that there may be a case if you feel you’re being unfairly charged. We’d recommend getting in touch with HMRC to see what wriggle room there is.

Can I avoid the charge without opting out of child benefit?

One strategy that you can use to claim child benefit without making yourself liable for the charge is to contribute more money to your personal pension.

The private pension tax relief enables you to add an extra 20% or 40% tax relief to your pension contributions. If you’re a basic rate taxpayer (you earn less than £50,270), you get 20% of every £100 you contribute added to your contribution. As a higher rate taxpayer (you earn more than £50,270), this goes up to 40%.

This means that if you contribute enough to push your earnings below the £50,000 threshold, you’ll avoid the HICBC.

Need a hand?

If this has left you worrying about your situation, don’t worry at all. We can help 💪

Check out our tax advice service: book a session to speak to a certified accountant about your situation and get the answers you need. We charge a one off fee of £119 (inc. VAT) per session, and that’s it. No obligation to commit to a tax return with us. Just take the advice and run! (If that’s what you want.)

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Gemma Doswell

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The High Income Child Benefit Charge tug of war