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High Income Child Benefit Charge – social research

Publication date:

13 July 2022

Last updated:

13 July 2022

Author(s):

Niki Patel, Tax and Trusts Specialist, Technical Connection Ltd

The High Income Child Benefit Charge (HICBC) was introduced in 2013 and, whilst the majority of taxpayers either comply with paying the charge or choose to opt out of payments, HMRC has identified several risks of non-compliance. This has mainly been due to a lack of awareness and understanding of the charge, while many individuals are not necessarily aware of some of the benefits of claiming Child Benefit.

In 2019 HMRC commissioned research into the awareness, understanding and decision-making processes of the HICBC.

Carried out by IFF Research, it comprised 42 face-to-face and three phone interviews with parents of children aged under 16 (or under 20 if in full time education), who were in a household where at least one adult had an annual income of at least £50,000. The research considered aspects such as the benefits of claiming Child Benefit, and the reasons why some people don't claim.

It was found that while most had a good understanding of most aspects of Child Benefit, there was lower knowledge of the charge itself, and very limited awareness of the other benefits of claiming, namely:

  • the ability to qualify for National Insurance credits which count towards the State Pension
  • the ability to qualify for other benefits, such as Guardian's Allowance
  • juvenile registration, that is, the process whereby children are automatically allocated a National Insurance number shortly before their 16th birthday

While some paid via self-assessment, a minority did not even realise they were liable for the charge and thought it was HMRC’s responsibility to inform them.

In looking at those individuals who chose to opt-out, many did so as they did not want to be faced with the administration burden of having to complete a tax return.

Following this, in 2020 HMRC commissioned NatCen to conduct social research to explore the barriers to compliance for the HICBC. This research comprised 48 in-depth interviews with taxpayers liable for the charge.

This report highlighted that the main barriers were:

  • lack of awareness of the charge, sometimes several years into building up the charge
  • not accurately understanding important details of the HICBC or Child Benefit, for example, the taxpayer’s responsibility to notify HMRC or that Child Benefit is paid every four weeks
  • not understanding the process of complying, completing self-assessments, paying through tax code adjustment or opting out
  • having complex earnings in the form of composite or fluctuating incomes leading to errors in accurately paying the charge

Both sets of research showed that there has been general confusion of how the charge applies. Those who participated in the latest research said that, while they were motivated to meet their responsibilities, they also identified areas for further support. This mainly was focused on raising awareness and improving taxpayer understanding of their liability and better communication from HMRC.

Many were reported as thinking that if they had an income above £50,000, they aren’t eligible to claim the benefit. In reality they have the choice of:

  • receiving the Child Benefit payments, and paying any tax charge at the end of the tax year
  • not receiving the Child Benefit payments and not paying the tax charge
  • not receiving the Child Benefit payments but still completing a claim form – it is important to state on the form that they don’t wish to receive the Child Benefit payments

The HICBC applies where a person is in receipt of Child Benefit and they have an 'adjusted net income' between £50,000 and £60,000. Broadly, this is total taxable income, before deducting any personal allowances, less any gross pension contributions which have received relief at source and gross gift aid payments. The amount of the charge is a 1% deduction of the amount of Child Benefit for every £100 of income which exceeds £50,000.

EXAMPLE

Sasha and Tanya have one son who is three years old. Sasha earns £52,000 and Tanya earns £43,000. As they have one child, Sasha receives Child Benefit of £1,133.60 (£21.80 x 52).

As Sasha’s earnings are £2,000 over the £50,000 limit, she will be subject to a HICBC of 20%: £226.72. Her Child Benefit will therefore be reduced to £906.88 (£1,133.60 - £226.72).

Sasha decides to make a gross gift aid payment of £2,000, which has the effect of reducing her adjusted net income to £50,000. This means that she is able to retain the full amount of the Child Benefit of £1,133.60. In addition, she saves 20% income tax on the gross gift aid payment which falls into higher rate tax - £346 (£1,730 x 20%).

SUMMARY

Given how long it has been since the introduction of the HICBC, it really is important for those claiming Child Benefit to fully understand their obligations as well as the benefits of claiming. It is also advisable to seek advice and explore the planning opportunities available for individuals to reduce their income to keep the benefit.

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This document is believed to be accurate but is not intended as a basis of knowledge upon which advice can be given. Neither the author (personal or corporate), the CII group, local institute or Society, or any of the officers or employees of those organisations accept any responsibility for any loss occasioned to any person acting or refraining from action as a result of the data or opinions included in this material. Opinions expressed are those of the author or authors and not necessarily those of the CII group, local institutes, or Societies.