If you have adjusted net income of over £50,000 and you or your partner receives child benefit, then you are caught by the High Income Child Benefit Charge (HICBC, or ‘hic-bic’), through which you have to pay some or all of the child benefit back. If this applies, you must register to file a Self Assessment tax return. There are no exceptions! However, there are a couple of things you can do in order to escape the net. Read on to find out more.
First of all, let’s look at ‘adjusted net income’. What is it?
Well, it’s not just your salary. You need to consider your total taxable income from all sources – including any benefits-in-kind which you may get from employment as well as any savings or rental income you may have. However, from this figure you can deduct gross pension contributions and Gift Aid contributions.
To a limited extent you can therefore manage your ‘adjusted net income’ in order to avoid liability to the HICBC – and the requirement to register to file a return – by making contributions to your pension or to charity.
For 2020/21, the £50,000 threshold is also the point at which non-Scottish taxpayers start to pay the higher rate of tax (at 40%). Making additional pension or Gift Aid contributions can also help you reduce your exposure to the higher rate of tax as well as the HICBC.
We can help you find out how this can work for you and how you can manage this effectively – you may be surprised at how much you can save.
If your adjusted net income exceeds £60,000 then the amount of the HICBC is equal to 100% of the child benefit claimed by you or your partner. In this case, you may wish to consider electing not to receive child benefit payments (but nevertheless continuing to claim child benefit). This will mean that:
- You can potentially avoid the need to file a Self Assessment tax return.
- The child benefit claimant continues to receive National Insurance credits, which can help them (or the child’s carer) accrue entitlement to a UK state pension
- The child will be automatically be issued with a National Insurance number when they turn 16
- If your circumstances change, you can backdate the payments for up to two years (whereas a child benefit claim can normally only be backdated by 3 months).
Speak to us today to see how we can help you get this right.
If HMRC have written to you asking you to pay the HICBC for previous years and you were not aware you were liable, then you should seek professional advice. HMRC may seek to charge you penalties for the ‘failure to notify’. Depending on your circumstances, you may have grounds to challenge the penalties and perhaps even the charge itself. Even if you are not successful, you can ask HMRC for a payment plan which is affordable for you.