If you have been one of the lucky ones to secure a pay rise this year, be mindful that the High‑Income Child Benefit Charge (HICBC) does not crash the party.
How does HICBC work?
The HICBC can kick in if either you or your partner earns more than £60,000 a year and Child Benefit is still being claimed.
Once you cross this threshold, HMRC will start to recover some of the HICBC.
It does not matter which of you claims the Child Benefit, as it will always be the higher earner who is charged.
How much do you have to pay back?
The amount you need to pay back increases alongside your income. A one per cent clawback rate is applied to every £200 of adjusted net income above the threshold.
For example, if you have an annual income of £63,000, you will repay 15 per cent of the Child Benefit you have claimed.
Once income reaches £80,000, the full amount will need to be paid back via the HICBC.
How is HICBC paid?
Last summer, HMRC introduced the option for families to report their Child Benefit and settle the HICBC through their PAYE tax code.
However, the previous methods of opting out of Child Benefit payments or paying the HICBC through Self Assessment remain available if you prefer to use them.
If you already file a Self Assessment return, you will still have to report the HICBC on these returns.
Should you opt out of Child Benefit?
If you receive Child Benefit, it is worth reviewing your position as soon as your income changes, rather than waiting until the end of the tax year.
Even when the HICBC cancels out your Child Benefit, you or your partner still get the perks of National Insurance credits.
These credits can help protect entitlement to the State Pension, so cancelling the claim without advice may not always be the best route, especially if the person receiving Child Benefit does not make regular National Insurance Contributions (NICs).
Speak to us if your latest pay rise makes you subject to the HICBC.
