What freelancers need to know about the High Income Child Benefit tax charge
In the UK more than 7.25m families receive Child Benefit, to help cover some of the living costs of about 12.66m children and young adults. This is payable to those who bring up children below the age of sixteen or young adults below the age of twenty in approved education or training.
Only one parent or guardian can get Child Benefit, which is paid each month or weekly depending on how you opt to receive it, but there is no limit to how many children you can claim for. For the 2022/23 tax year, you get £21.80 a week for your first child/young adult and £14.45 for each additional child/young adult.
The number of people receiving Child Benefit has fallen since the early 2000s. According to HMRC, the introduction of the High Income Child Benefit Charge (HICBC) in January 2013 led to a decrease in the number of families claiming Child Benefit, with many opting out because of the tax implications.
In this guide, GoSimpleTax explain:
- Who must pay the High Income Benefit Charge?
- How the High Income Benefit Charge is paid. You may need to register for self-assessment.
- How to opt out of paying the High Income Benefit Charge.
- What to do if your circumstances change.
- How to reclaim overpaid High Income Benefit Charge.
Who pays the High Income Benefit Charge?
The High Income Child Benefit Charge is payable when you OR your spouse/partner’s taxable annual income is more than £50,000 and you receive Child Benefit. It can also be payable if someone else (eg your ex-spouse) receives Child Benefit for a child/young adult living with you and they contribute at least an equal amount towards their living costs.
You don’t need to be the biological parent for High Income Benefit Charge rules to apply. For High Income Benefit Charge purposes, income is your total taxable income before your or your partner’s Personal Allowance or any other allowances (eg Married Couple’s Allowance) are taken into account.
If your income and your partner’s income are more than £50,000 a year, the person with the higher personal income is responsible for paying the High Income Benefit Charge.
“Partner” means someone you’re married to or in a civil partnership with or living with them as if a civil partner.
Do you claim Child Benefit or opt out?
If your OR your partner’s taxable, pre-allowance income is more £50,000 a year, you must report Child Benefit you receive and pay tax on it via Self Assessment – more on the Self Assessment below.
Because of the tax implications, you can decide not to claim Child Benefit, in which case you won’t need to report it or pay tax on it. You do this by stating on the Child Benefit claim form that you do not want to receive Child Benefit.
You will still get National Insurance credits towards your State Pension entitlement and your child will automatically be sent their National Insurance number before they are 16.
You can decide to claim Child Benefit and later opt out; or opt out and later opt in. You are not required by law to claim Child Benefit.
How much High Income Child Benefit Charge is payable?
- The High Income Child Benefit Charge is 1% of the amount of child benefit for each £100 of your income, on a sliding scale between £50,000 and £60,000.
- So, for those earning more than £60,000 the charge is 100%, which means they’re no better off by claiming Child Benefit, so they’d be better opting out to save themselves the trouble of having to complete a Self Assessment tax return.
Need to know! Government website GOV.UK features a handy online calculator so you can work out how much Child Benefit you’ll receive in a tax year and how much High Income Child Benefit Charge will be payable.
Paying the High Income Child Benefit Charge
To pay the High Income Child Benefit Charge, first you’ll need to register for Self Assessment with HMRC after which you’ll need to fill in and file a Self Assessment tax return each year. Government website GOV.UK explains how to register for Self Assessment if you’re not already self-employed.
If this is the case you must register by 5 October latest following the end of tax year for which you need to pay the High Income Child Benefit Charge (the UK tax year ends on 5 April). You may be fined if you fail to register when required, while not declaring taxable income from Child Benefit can also lead to financial penalties.
Stopping and starting Child Benefit
Because of the tax implications (eg you receive a significant wage rise), you may decide to stop claiming Child Benefit. To do this, you can fill in an online form (you’ll need your Government Gateway user ID and password when you sign in) or write to or call the Child Benefit Office. You must pay any High Income Child Benefit Charge you owe for the tax year up to the date your Child Benefit stopped.
If your circumstances change and you want to start claiming Child Benefit again (eg your income drops), you do in the same way as detailed above. Payments usually start again within days and you’ll be told whether you’re due any backdated Child Benefit.
If your taxable income changes and it falls below £50,000 for the year, you won’t have to pay the High Income Child Benefit Charge. You can stop or restart your Child Benefit whenever you like.
Your High Income Child Benefit Charge liability can change should a former partner move out or a new partner move in (they may be claiming Child Benefit), which is something to bear in mind. To find out about the tax implications you can use the High Income Child Benefit Charge online tool on GOV.UK, before perhaps seeking tailored advice.
Preventing mistakes and limiting your tax liabilities
As already explained, failure to report taxable Child Benefit via Self Assessment, which you may need to register for, can lead to financial penalties. These can be significant if made over a number of years. As well as a fine, expect to pay outstanding tax and interest. Ignorance is no defence.
Not getting your Self Assessment tax return in by the filing date can also lead to penalties, although (for a fee) you can get help with yours, while third-party Self Assessment software can make the task much quicker and easier, with mistakes also less likely.
You also need to ensure that tax doesn’t continue to be deducted from your income when you stop claiming Child Benefit, for example, when your son or daughter is above the age of 16 or 20 if in training or education, or they suddenly leave education or training. This is more likely if deductions for the High Income Benefits Charge are made via the payroll of a company you work for.
If you suspect that you’ve been paying tax on Child Benefit that you didn’t receive, seek a refund from HMRC.