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New process to pay High Income Child Benefit Charge through PAYE

Though the High Income Child Benefit Charge (HICBC)
has been in place for ten years now, many parents or guardians may still be unaware of its requirements.

It’s effectively a tax applying to any parent or guardian who earns more than £50,000 a year and claims Child Benefit for a child living in their home.

To pay this charge, the individual must file a Self-Assessment Tax Return – but many employees don’t realise this, because they are used to having taxes deducted from their earnings automatically through the PAYE

As a result of the lack of public awareness about the HICBC
rules, thousands of families could be hit by surprise fines and expected to pay back years of Child Benefit.

To address widespread criticism surrounding this issue, the UK government has stated that they will introduce changes to allow taxpayers to pay the HICBC through PAYE.

How does the HICBC work?

Parents and guardians in England and Wales can claim monthly payments from the government to help them with living costs for children in their care.

Child Benefit is available for any child until they are 16 years old, or up to 20 years old if they continue to live in the household while in approved education or training.

The rate is higher for the first child and lower for additional children, being £24 a week for the first child and £15.90 a week for subsequent children in 2023–2024.

As the government pays Child Benefit regardless of the parent’s or guardian’s income, the High Income Child Benefit Charge (HICBC) is their method for claiming the payments back from higher earners who do not need the financial support.

The charge comes into play when the individual claiming for their child, or their partner, earns an annual income exceeding £50,000. Whoever is the highest earner would be responsible for paying the HICBC, even if they weren’t the claimant.

For every £100 earned over this threshold, the government deducts 1% from their Child Benefit allowance – meaning that the charge reaches 100% and benefit eligibility becomes 0%
for those who earn £60,000 or above.

The charge could then require higher earners to pay back several hundred pounds a year – and if they fail to submit a tax return, HMRC can charge a penalty of up to 30% of the balance, as well as adding late fees and interest to the bill.

How is the HICBC changing?

The HICBC threshold has stayed the same since it was first introduced in 2013, so it has not been keeping up with adjusted Income Tax thresholds or inflation.

This has pushed more and more families into owing the HICBC
and losing benefit eligibility – with the latest data from HMRC
showing that the number of families claiming and receiving Child Benefit
is at its lowest since the charge was introduced.

With public knowledge of the HICBC system lacking, and wages rising in the last decade, it’s likely that hundreds of thousands of families could owe several years of Child Benefit repayments without even knowing it.

A backdated HICBC bill and late penalties can cause severe disruption to household budgets, even for higher earners, in a difficult economic climate. Perhaps this realisation has pushed the government to acknowledge the system is failing families.

In July, the Financial Secretary to the Treasury – Victoria Atkins MP – made a written Parliamentary Statement announcing the intention to simplify the process of paying the HICBC by enabling liable employees to do so through PAYE.

Further details will be provided in due course to explain how individuals can adjust their tax code to pay the HICBC through salary deductions. This would eliminate the need to register for Self-Assessment
and submit HICBC tax returns.

In addition to this time-saving measure that should prevent some families from falling foul of late filing penalties, the government is also due to announce how those who opt out of receiving Child Benefit
can get retrospective National Insurance credits to maintain State Pension eligibility, as announced on Tax Day in April.

Tax planning for the High Income Child Benefit Charge

Whether you claim Child Benefit for a single child or multiple children in your household, it’s essential to check whether the HICBC
applies to you (or your partner).

You can find detailed HICBC guidance on the government website, and use the Child Benefit tax calculator to estimate how much you might be liable for.

If it turns out that you should have been filing tax returns and paying the charge, it’s best to contact HMRC as soon as possible, as the tax agency may be more lenient if you comply after learning of your genuine mistake from lack of awareness.

It can also help to get professional advice on tax planning to reduce your HICBC liability, and assess whether it would be worth it to opt out of Child Benefit completely.

As this Child Benefit charge can become tangled with Income Tax and other benefits such as the State Pension, it could be helpful to contact our accountants in Barnsley to make sure you take the right steps for your family’s financial future.

Reach out to gbac by calling us on 01226 298 298 or emailing us at info@gbac.co.uk to learn more about how we can help with the HICBC.