Did you stop claiming Child Benefit?
High Income Child Benefit Charge (HICBC) took effect from January 2013 and I have always thought of it as a nasty tax. Imagine the scenario; you are doing well in your job, have a couple of kids and you get a decent pay rise that takes your salary over £50k. You don’t know about HICBC because the government didn’t publicise it very well, but assume that your tax code must be right and the two sides of government involved (Department of Work And Pensions who pay Child Benefit and HMRC who deal with your tax) must talk to each other and would tell you if there was an issue, right?
Unfortunately, no, there is no automatic charging of HICBC. Instead it is down to you, the taxpayer, to notify HMRC that they need to amend your tax code and guess how much your income will be for the tax year that you are in. And having income above £50k and claiming Child Benefit drags you into the Self Assessment system, which has its own regime of deadlines and late filing penalties.
To compound the issue HICBC applies to the higher earner in the household and applies to unmarried as well as married couples. There will be couples who don’t discuss what each other earns and don’t have joint finances, so the situation can arise where Child Benefit is paid to one parent (typically the mother) yet the other parent has income above the threshold for HICBC and ends up suffering the cost. That seems nasty to me. And the numbers are not small; HICBC is paid by around 400,000 people, but affects around a million families in total because a further 600,000 people choose to disclaim Child Benefit.
For the 10+ years since it was introduced there had been no change in the HICBC limits - if your income is in the range £50,000 to £60,000 you lose some of the Child Benefit through HICBC, but if your income is over £60k the HICBC fully claws back all of the Child Benefit that has been paid. This has caused some couples to stop claiming Child Benefit and avoid the hassle around HICBC, which is fine if you have a six figure salary and are certain that this will not change, but life does happen and circumstances can change. If your income drops below £50k and you need to restart claiming Child Benefit that cannot be backdated for more than a few weeks so you can miss out.
So what effect might the higher limits from 6 April 2024 have? The government increased the starting threshold from £50k to £60k and also widened the income band by increasing the top limit to £80k, so where for the 2023-24 tax year HICBC applied to a £10k band of income for 2024-25 it applies to a £20k band. The government estimates that approaching 500,000 families will benefit from this change, with around 170,000 taken out of the charge altogether.
I think it’s worth pointing out that if your income is in the range £60k to £80k and your household previously decided to stop claiming Child Benefit, you need to consider claiming it once again (even though some would have to be clawed back through HICBC) because your household finances should be better off overall. But since benefit claims can only be backdated a few weeks, don’t delay!