In the UK, families can receive Child Benefit, a tax-free payment that is typically made every four weeks. However, for those with a higher income, a tax charge known as the High Income Child Benefit Charge (HICBC) applies. This article will explain the HICBC and how it impacts families in the UK in 2023.
High Income Child Benefit Charge: An Overview
If you or your partners have an individual income that exceeds £50,000 and you receive Child Benefit, or someone else receives Child Benefit for a child living with you who contributes at least an equal amount towards the child’s upkeep, you may be required to pay the HICBC. It is important to note that the child living with you does not need to be your own.
To determine if your income is over the threshold, you need to calculate your ‘adjusted net income’. This is your total taxable income before any allowances and it does not include things like Gift Aid. It encompasses interest from savings and dividends. The UK government provides a Child Benefit tax calculator to estimate your adjusted net income.
Payment of the Tax Charge
If your adjusted net income is over £50,000 and so is your partner’s, then whoever has the higher income is responsible for paying the tax charge. If your income exceeds the threshold, you have the option to either receive Child Benefit payments and pay any tax charge at the end of each tax year, or opt out of getting payments and not pay the tax charge.
Opting Out of Child Benefit Payments
Even if you choose to opt out of receiving Child Benefit payments, you should still fill in the Child Benefit claim form. You need to indicate on the form that you do not want to receive payments. Filling in the claim form allows you to get National Insurance credits, which count towards your State Pension, and your child can get a National Insurance number without having to apply for one—usually before they turn 16 years old.
Child Benefit Rates for 2023-2024
For the tax year 2023 to 2024, the weekly Child Benefit rates are £24.00 for the eldest or only child, and £15.90 for other children.
Calculating the High Income Child Benefit Charge
The HICBC is calculated based on your income over £50,000. The Child Benefit is effectively withdrawn at a rate of 1% for each £100 earned by the higher-income partner over £50,000 a year. Therefore, if the higher-income partner’s income reaches £60,000 a year, the benefit is fully withdrawn.
High Income Child Benefit Tax Charge Calculator
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How to Pay High Income Child Benefit Charge in the UK 2023 – A Step-by-Step Guide
The High Income Child Benefit Charge (HICBC) is a tax charge in the UK that affects individuals or their partners who have an adjusted net income over £50,000 per annum and receive Child Benefit. The tax charge is designed to gradually reduce the Child Benefit for those with higher incomes. This guide will walk you through the key steps to pay the HICBC.
How the Charge Works
The charge operates by withdrawing Child Benefit at a rate of 1% for each £100 earned by the higher-income partner over £50,000 a year. Therefore, the benefit is fully withdrawn where income of the higher-income partner reaches £60,000 a year. In the 2023-2024 tax year, the Child Benefit rate for the eldest or only child is £24 per week.
When your income crosses the £50,000 threshold, you have two options:
- Continue to receive Child Benefit payments and pay any tax charge at the end of each tax year.
- Opt out of receiving Child Benefit payments and thus avoid the tax charge.
Choosing to opt out of receiving Child Benefit payments does not mean you should not fill in the Child Benefit claim form. You still need to state on the form that you do not want to get payments. Filling in the claim form allows you to get National Insurance credits, which count towards your State Pension, and get your child a National Insurance number without them having to apply for one1.
Individuals who need to pay the charge must submit a Self-Assessment tax return each tax year, even if they are employed and normally pay their tax through Pay As You Earn (PAYE).
Remember, it’s always important to keep records of your income and taxes, and to seek professional advice if you’re unsure about anything related to your tax obligations.The High Income Child Benefit Charge is an important consideration for families in the UK with an income over £50,000. By understanding the charge and the options available, families can make informed decisions that best serve their financial situation.
How Total Tax Accountants Can Assist with the High Income Child Benefit Charge
Navigating the complex world of taxes can be daunting, especially when it comes to specific charges like the High Income Child Benefit Charge (HICBC) in the UK. A tax accountant can help you understand these charges, ensure you are paying the correct amount, and guide you through the process. Total Tax Accountants, with their expertise and knowledge in UK tax laws, can provide valuable assistance in managing the HICBC. Here’s how they can help.
Understanding the High Income Child Benefit Charge
The first step to managing any tax charge is understanding what it is and how it applies to you. Total Tax Accountants can help demystify the HICBC, explaining in simple terms who is liable for the charge, how it is calculated, and what the potential implications may be. They can guide you through the regulations, making sure you understand key aspects such as the definition of ‘adjusted net income’, the income threshold for the charge, and how your relationship status can affect your liability.
Income Assessment and Charge Calculation
Determining whether your income exceeds the threshold for the HICBC involves assessing your ‘adjusted net income’. This assessment can be complex, as it involves your total taxable income before any allowances, and does not include things like Gift Aid. Total Tax Accountants can accurately assess your income, ensuring all relevant factors are taken into account. They can then calculate the exact amount of the HICBC you may be liable for, taking into account the 1% withdrawal rate for each £100 earned over £50,000.
Guidance on Payment Options
When your income crosses the £50,000 threshold, you have the option to continue receiving Child Benefit payments and pay the tax charge at the end of each tax year, or opt out of receiving Child Benefit payments and thus avoid the tax charge. Total Tax Accountants can guide you through these options, helping you understand the potential advantages and disadvantages of each. They can offer advice tailored to your specific circumstances, ensuring you make the decision that is best for you and your family.
Assistance with Forms and Paperwork
The process of dealing with the HICBC involves various forms and paperwork, such as the Child Benefit claim form and the Self-Assessment tax return. Total Tax Accountants can assist with these, ensuring all forms are filled out correctly and submitted on time. They can also help you understand what information is required, and guide you on how to provide it.
Representation with HM Revenue and Customs (HMRC)
Dealing with the HMRC can be intimidating, especially if there are disputes or complications regarding your tax charges. Total Tax Accountants can act as your representative, liaising with HMRC on your behalf. They can handle any queries or issues, and provide advice and support if you are subject to an HMRC inquiry or investigation.
Ongoing Tax Planning and Advice
Managing the HICBC is not a one-time process, but something that may need to be reviewed and adjusted each tax year. Total Tax Accountants can provide ongoing tax planning and advice, helping you manage the HICBC effectively over time. They can advise on potential changes in your income or circumstances that may affect your liability for the charge, and guide you on how to plan and prepare for these.
In conclusion, managing the HICBC can be a complex process, but with the expertise and support of Total Tax Accountants, it becomes a lot simpler. They can provide valuable guidance, from understanding the charge, to calculating your liability, to assisting with forms and dealing with HMRC. By working with Total Tax Accountants, you can ensure you are meeting your tax obligations in the most effective and stress-free way possible.