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Is your High Income Child Benefit Charge tax return overdue?

Many parents are not aware of the High Income Child Benefit Charge (HICBC). It’s a confusing kind of tax, requiring individuals who need to repay some or all of the Child Benefit payments they’ve received to submit a tax return every year, even if their income is already taxed through PAYE.

Since there is little public awareness about the requirement to pay back Child Benefit if your income is above a certain threshold, many people are at risk of receiving penalties from HMRC and having to pay back thousands of pounds they weren’t even aware they owed.

Currently, the number of people estimated to be in default for the High Income Child Benefit Charge is over 60,000. If you’re liable for paying the HICBC, but haven’t been submitting Self Assessment Tax returns each year, then you could be one of many middle-income families who will find themselves owing several thousand pounds in backdated Child Benefit repayments.

Read on to find out how the High Income Child Benefit Charge works, who it applies to, and what will happen if you’re liable for this charge but haven’t been paying.

What is the HICBC and who has to pay it?

As most parents in England and Wales will know, Child Benefit is a monthly payment from the government to help pay for a child’s living costs. The rates vary according to the number of children you have, being higher for the first child and lower for additional children.

One adult can claim for any child they’re responsible for until the child is 16 years old (or up to 20 years old if they continue to live with their parent or guardian and stay in education or training).

However, in 2013, the government introduced the High Income Child Benefit Charge to claim back some or all of these payments from parents and guardians who are higher earners. This charge means that for every £100 you earn over the £50,000 threshold, you would have to pay back 1% of the total you’d received in Child Benefit payments that year.

This threshold hasn’t changed since its introduction a decade ago, so it hasn’t kept pace with inflation, rising wages, or updated Income Tax thresholds. Even for higher earners, an unexpected HICBC bill
can have a negative impact on household budgeting during the cost of living crisis.

If you earn £60,000 a year or more, you’ll have to pay back all of the Child Benefit you’ve received. This could result in a HICBC bill of over £1,000 a year for an only child, and almost £700
a year more for every additional child.

Not to mention that failing to submit a Self Assessment Tax return, filing incorrectly, or failing to pay the HICBC could also add late fees and other financial penalties to your tax bill.

Complications of the High Income Child Benefit Charge

A particular issue with the HICBC that causes confusion is that it only applies to one parent or guardian of the child, and only the highest earning parent or guardian.

In a two-parent household with both earning over the threshold, the person who has the highest income will be responsible for paying it – even if their partner is the one claiming Child Benefit, and even if the child in question isn’t theirs.

Meanwhile, single parents earning over £50,000 a year will have to shoulder the HICBC bill by themselves. However, if they enter a relationship and their partner moves in with them, this can complicate things further.

The government includes couples living together as partners when determining HICBC liability, so it doesn’t just apply to those who are married or in a civil partnership.

For example, if Partner A is the single parent, and Partner B moves in with them and their child while earning over the HICBC
threshold and more than Partner A, they may suddenly find themselves responsible for paying the HICBC for Partner A’s child.

Additionally, if a couple separates and no longer knows what the other person’s income level is, they may not realise that they are the one responsible for paying the HICBC.

As mentioned earlier, with little public knowledge of this charge and salary increases in the decade since it came into force, it’s also quite easy for people’s income to cross the threshold and trigger liability without them even knowing that they should be filing a tax return for it.

What happens if you don’t pay the High Income Child Benefit Charge?

The government has been carrying out compliance checks on thousands of families every year to make sure those who are liable for the charge are repaying what they owe.

Individuals who are responsible may receive a letter from HMRC, but even if they haven’t, this doesn’t necessarily mean that they aren’t liable. It’s the individual’s responsibility to file a tax return and pay any amount due.

Failure to notify HMRC could result in a fine of up to 30% of the amount they already owe, plus interest charged for every day past the deadline for filing and payment for that year. Even if you didn’t know about it, the longer you failed to declare it in a Self Assessment Tax return, the higher the bill will be racking up.

For example, someone earning £60,000 a year and mistakenly claiming Child Benefit for a single child for 3 years could face a total HICBC bill surpassing £10,000 once all penalties and fines have been added. Even setting up a Time to Pay arrangement to repay this in instalments would have a significant negative effect on family finances.

This is why it’s so important to check whether the High Income Child Benefit Charge
applies to you or your partner, and to make sure that you file a tax return on time for every year that you’re liable. If you realise that you’ve been liable in previous years, the sooner you contact HMRC, the better. They are more likely to be lenient with penalties to reward compliance following genuine mistakes.

Getting help with the HICBC

Given that the deadline for filing and paying Self-Assessment Tax is 31st January, it’s crucial for anyone who thinks that the HICBC may affect them or their partner to look into it immediately. If you were liable for the HICBC in the 2021–2022 tax year or earlier, then you could be hit with fines on top of your Child Benefit repayments.

You may be considering opting out of receiving Child Benefit altogether to avoid the HICBC.

If you’re wondering what you can do about this charge, tax planning services can help you assess your tax liabilities and manage your filing responsibilities – ensuring that you pay what you owe, when you owe it, and avoid the hassle of backdated assessments and late penalties.

If you believe you could benefit from professional tax advice regarding the High Income Child Benefit Charge, please contact GBAC
today. You can speak to our accountants in Barnsley or Leeds by calling 01226 298 298 or emailing info@gbac.co.uk.