If you have secured a pay rise this year, be mindful that you might be required to pay the High‑Income Child Benefit Charge (HICBC).
How does HICBC work?
The HICBC can kick in if either you or your partner has adjusted net income of more than £60,000 a year and Child Benefit is being claimed. Adjusted net income is total taxable income less a deduction for pension contributions and gift aid payments.
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 depends on the level of 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 taxpayers 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, it is important that Child Benefit received is reported on the return if you are liable to pay the HICBC.
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.
