Child Benefit tax charges

Child Benefit tax charges

The High-Income Child Benefit Charge (HICBC) was introduced in January 2013. The rules can be quite complex, but it essentially starts to claw back Child Benefit (which remains a tax-free payment) by levying a tax charge on the higher income person of a ‘family unit’. If that person has relevant income above £50,000. By the time income reaches £60,000. The tax charge is enough to claw back all the child benefit received by either parent. Note that the charge can apply even if the couple are not actually married. The £50,000 threshold at which the charge begins has not been increased since HICBC was first introduced. Indeed, as the threshold at which the 40% tax rate begins to apply is now income above £50,270. You no longer even need to be a higher-rate taxpayer to suffer the charge! More and more people are coming within the scope of the HICBC as earnings rise. Consequently, there have been a lot of tax cases over the last three years where appellants have argued that they have a ‘reasonable excuse’ for not having declared and paid the charge. Most of these cases are won by HMRC. To be successful at appeal, the appellant would normally need to show that they:

  • Were not under an obligation to complete a tax return for the tax years prior to that in which the HICBC applied because, primarily. They were paid through PAYE and had no other income to justify a return being made;
  • Were in receipt of child benefit payments prior to the introduction of HICBC. With the consequence that the application for Child Benefit made no reference to HICBC. [NB the Child Benefit claim form, since the introduction of HICBC, clearly sets out when the charge applies.]
  • Had not received notification from HMRC directly at any point prior to the contact which led to the issues of the tax assessment; but
  • Acted promptly in ceasing to claim Child Benefit and engaged actively with resolving the historic tax liabilities as soon as HMRC did make contact

The complete Spring Newsletter can be found here