For some time now, HMRC have had the power to claw back some or all of the Child Benefits you receive if either parent’s income exceeds £50,000.
The benefit is recovered by the High Income Child Benefit Charge (HICBC). This states that if either parent had income over £50,000 and:
- either partner received Child Benefit, or
- someone else received Child Benefit for a child living with you and they contribute at least an equal amount towards the child’s upkeep.
Then part or all of the Child Benefit received may need to be paid back to HMRC. It doesn’t matter if the child living with you is not your own child.
You may not have considered the HICBC before if your incomes were below the £50,000 cap, but if your income for 2020-21 exceeded this amount you should be aware of the following.
- The parent with the higher income for 2020-21 (more than £50,000) will need to register to submit a self-assessment tax return and pay any HICBC due – unless they are already registered in which case, they will need to enter the amount of Child Benefit received on their return and pay any tax due.
- The parent with the higher income, even if they were not the person claiming the Child Benefit, will need to make this declaration.
How will benefits be paid back?
1% of the Child Benefit received will be recovered by HMRC’s HICBC for every £100 the highest earner’s income exceeds £50,000. Accordingly, once the highest income exceeds £60,000 all the Child Benefits received will be reclaimed.
To avoid the charge, it is possible to decline receipt of Child Benefits. Care should be taken in triggering this option as it can have roll-on disadvantages when claiming future State Benefits or obtaining a National Insurance number for children.
To summarise:
- Parents where the highest income is below £50,000 will not be affected and can continue to claim Child Benefit with no tax claw back.
- Parents where the highest income is above £50,000 but below £60,000 will be affected and will need to pay the appropriate HICBC.
There are strategies that you could use to reduce your taxable income below the £50,000 or £60,000 thresholds as these are calculated net of any allowable deductions.
Please call if you would like more advice regarding these deductions or dealing with your registration for self-assessment, if required.