Taxpayers could be hit by High Income Child Benefit Charge if they earn £50,000 or more | Personal Finance | Finance

If a person or their partner earns more than £50,000 a year before tax, they are required to pay back some (or all) of their Child Benefit in the form of the HICBC. Because the basic rate band covers taxable income from £12,571 to £50,270, it means a portion of basic rate taxpayers will be affected.

However, the partner who has the higher income will have to repay the portion of Child Benefit that they no longer qualify for.

To do this, they’ll need to fill in a self-assessment tax return.

This is so HMRC can calculate the amount of extra income tax that is payable.

A self-assessment (or SA100 form) is a system that HMRC uses to find out how much income tax and National Insurance a person needs to pay on any income that isn’t taxed at source.

With the High Income Child Benefit Charge, a person is required to pay back one percent of their family’s Child Benefit for every extra £100 they earn over £50,000 each year.

Adrian Lowery, personal finance expert at Bestinvest said: “Watch out for the High Income Child Benefit Charge. If you or your partner have registered for and claim Child Benefit and one of you earns more than £50,000 a year, you’ll be liable for the High Income Child Benefit tax Charge.

“This can be a major irritation for some couples as it needs to be paid through self-assessment. The charge increases gradually depending on how much you earn. For those earning £60,000 or more, it equals the total amount of the Child Benefit. This means lots of people choose not to claim Child Benefit, but by not claiming, you or your partner might miss out on National Insurance credits that count towards state pension entitlement.” Mr Lowery added.

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Couples can have a combined income of up to £100,000 and not be affected by the charge.

This is as long as neither of them has an individual income of over £50,000.

For example, if two members of a couple are each earning £45,000, they will not be affected.

People can also choose to stop receiving Child Benefit payments so they don’t have to pay the extra tax.

This means that they won’t have to complete a tax return.

Overall, any payable charge will be based on adjusted net income for income tax – that is, a person’s taxable income after any allowable reliefs that they may be able to claim such as reliefs for pension contributions or charitable donations.

Louise Higham, a chartered financial planner at Tilney, Smith & Williamson, said: “If you are affected by the charge, the sensible option is to register for Child Benefit but opt not to receive it. This is so you don’t have to pay the tax charge but can still accumulate National Insurance credits.

“This tax charge could also be avoided while still legitimately claiming Child Benefit – if by using salary sacrifice for your pension contributions you take your gross earnings below the £50,000 threshold.”