The clumsily named High-Income Child Benefit Charge (HICBC) was introduced in 2013 by HMRC to recoup child benefit paid to households in which at least one partner is classed as a high earner ...
The calculation and collection of the High-Income Child Benefit Charge are problematic, and it is evident that the clawback of child benefit in appropriate circumstances is not being achieved properly by HMRC. This is of great concern, as it means some families may be facing a tax liability they are unaware of.
Where child benefit has been received and one or both partners in the family have an income exceeding £50,000 in a tax year, the higher earner must pay a HICBC equal to any 'excess' benefit received.
This system relies on taxpayers accurately self-assessing their liability, which means they must be conscious if the charge applies to them. This goes against the longstanding UK policy of independent taxation, where taxpayers have a right to financial privacy, even from other members of the household.
Understanding if they have a liability to the HICBC necessitates the high earner knowing that child benefit is being received (which won't always be the case as claimants can opt to not receive it) and that their income surpasses that of their partner. This can be a particular issue for those claimants who have little financial independence apart from the receipt of child benefits.
If two partners each earn £40,000 then the HICBC will not be enforced, however, if one earns £60,000 and the other nothing, then repayment of benefit is required, even though the overall family income will be lower in this case. With inflationary pay rises, the number of families potentially falling foul of these rules is set to increase, at a time when family finances are already stretched.
Recently, the Court of Appeal upheld an appeal by one taxpayer, Jason Wilkes, on the grounds that HMRC was not entitled to reclaim overpaid child benefit from him, as the High-Income Child Benefit Charge could not be assessed according to the provisions HMRC relied upon.
However, the practical effect of this decision is limited, as Parliament has since changed the rules to stop anyone using this argument, unless an appeal was submitted before 1st July 2021. The fundamental issues with the HICBC remain unresolved, and with the pressure on government finances, it's unlikely these will change in the near future.
HMRC will pursue the HICBC, with interest and potential penalties, and ignorance of their liability will not be accepted as a defence. The only answer, for now, is that individuals who have, or are responsible for, a child under the age of 20 and have an income in excess of £50,000 in the relevant tax year, should ascertain if child benefit has been received.
Keep your tax affairs in order, especially with regard to the High-Income Child Benefit Charge.
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