The High Income Child Benefit Charge - Your Questions Answered


From 7th January 2013, the High Income Child Benefit Charge will be introduced. You may recently have received a letter from HMRC informing you of these Child Benefit changes and you must act on this now depending on your decision and circumstances.

The Full Guide to the High Income Child Benefit Charge can be downloaded here.

This change will not affect everyone; however, you may be liable to a new charge if you, or your partner, have an individual income of over £50,000 and one of you receives Child Benefit or contributions towards the upkeep of a child. The charge may also apply if someone else receives Child Benefit for a child who lives with you.

In order to help those affected, Mitchell Charlesworth's Tax team have put together the following Questions and Answers guide. After reading the guide, if you have any further questions, please contact your nearest Mitchell Charlesworth office:

Q. Will I be affected by the High Income Child Benefit Charge?

A. If any of the following criteria apply to you, then you may be affected by the High Income Child Benefit charge:

1. You have an individual income of more than £50,000 and are entitled to receive Child Benefit.

2. You have an individual income of more than £50,000 and live (or have lived) with a partner who is entitled to receive Child Benefit.

3. Both you and your partner have an income of more than £50,000 per year, you have the higher income and one of you is entitled to receive Child Benefit.

You will also be affected by the charge if during a tax year you have an individual income of more than £50,000 and both of the following apply:

1. Someone else is entitled to receive Child Benefit for a child who lives with you; AND

2. They are entitled because they contribute at least an equivalent amount of Child Benefit towards the child's upkeep, for example pocket money or clothes.

Q. Does it matter if the child that lives with me is my child?

A. Importantly, it does not matter whether the child that is living with you is not your own child - you may still be liable for the charge.

Q. How is 'income' calculated?

A. Your income will generally be calculated as your income before tax and deduction of ''Personal Allowances' and a tax year runs from 6 April to 5 April the following year.

Q. Who will count as a 'partner' under the High Income Child Benefit Charge?

A. For the purposes of the High Income Child Benefit Charge, a partner is defined as any of the following:

  • A person you are married to and you are living with - or have lived with during a tax year - and not permanently separated from
  • A civil partner you are living with - or have lived with during a tax year - and not permanently separated from
  • A person you are living with - or have lived with during a tax year - as if you are married or a civil partner

Q. What are the next steps if I am affected by the High Income Child Benefit Charge?

A. Should you fall under the criteria above then you have two options:

1. Continue to receive Child Benefit Payments - should you choose to continue to receive Child Benefits, you will need to declare the amount you or your partner are entitled to by filling in a tax return each year. In order to do this, you will need to register for Self-Assessment if you have not yet done so.

2. Stop receiving Child Benefit payments - you may decide to tell the Child Benefit Office that you would like to stop receiving payments. Should you choose this option, you will not be liable for the new tax charge and won't need to fill in a tax return (unless you need to for other reasons).

Q. How will the tax charge work?

A. The amount of tax charge you will receive is based on the level of Child Benefit you are entitled to and the level of your 'adjusted net income'.

Q. If I choose to stop Child Benefit payments, will if affect my entitlement to Child Benefit?

A. Your entitlement to Child Benefit will not be affected if you decide to stop your Child Benefit payments. If you, or your partner is entitled to receive child benefit, you should still complete a Child Benefit claim form, if you have not already done so. It is important to do this, as your entitlement to Child Benefit:

  • Can help you qualify for National Insurance credits that can protect your entitlement to State Pension
  • Can help protect your entitlement to other benefits such as Guardian's Allowance
  • Ensures your child is automatically issued with a National Insurance number before their 16th birthday

Q. How will my income affect the level of tax charge?

A. Your income level may influence whether you decide to keep getting Child Benefit payments or stop getting Child Benefit payments because of the amount of tax you might have to pay. By way of estimate (according to HMRC):

For income between £50,000 and £60,000, the tax charge will always be less than the amount of Child Benefit.

For income of more than £60,000, the tax charge will generally be the same as the amount of Child Benefit. But some income adjustments may apply, such as pension contributions, which could bring your income level down to below £60,000. This could reduce your tax charge.

EXAMPLE: Tax Charge Calculation Example (as provided by HMRC):

1. Charge on income of £50,000 to £60,000

The tax charge will be 1 per cent of the Child Benefit paid for every £100 of income between £50,000 and £60,000.

The tax charge will be less than the total amount of Child Benefit.

  • Example:

Your individual adjusted net income is £54,000. You are entitled to Child Benefit for two children of £438 for the period from 7 January 2013 to 5 April 2013.

Your tax charge will be worked out as follows:

Step one: income over £50,000 = £4,000

Step two: determine the percentage rate to be applied to the result from step one, so £4,000 ÷ 100 = 40 (%)

Step three: £438 x 40% = £175

Your tax charge will be = £175

2. Charge on income of £60,000 or more

If your individual income is £60,000 or more, the tax charge will be equal to the full amount of Child Benefit you, or your partner, are entitled to receive.

  • Example:

Your individual adjusted net income is £62,000. You, or your partner, were entitled to receive Child Benefit of £438 for two children for the period from 7 January 2013 to 5 April 2013.

Your tax charge will be £438.

Q. I have an estimate of my tax charge, what should I do next?

A.  The first step is to talk to any partner you have to decide whether it would be better to continue receiving Child Benefit payments or to stop them.

Q. Keep Child Benefit Payments: What happens if I decide to keep getting Child Benefit Payments?

A. Should you decide to keep receiving Child Benefit payments, then you will need to pay a tax charge. You will have to declare your Child Benefit payments by completing a tax return and registering for Self-Assessment.

Please note that you can always change your mind and arrange to stop the payments later on.
You need to register for Self-Assessment as soon as possible (no later than 5th October 2013, for the 2012/13 tax year). You may be liable for a penalty if you do not register.

Q. Stop Child Benefit Payments: What happens if I choose to stop receiving Child Benefit Payments?

A. By choosing to not receive Child Benefit Payments any more, you will not have to pay the tax charge, you will not need to complete a tax return (unless you have to for other reasons) and providing you qualify for it, your entitlement to Child Benefit will carry on.

Q. How do I stop the Child Benefit Payments?

A. You can arrange to stop the payments at any time by telling the Child Benefit Office. You can do this by using an online form, by calling the Child Benefit Helpline or writing to the Child Benefit Office.
Crucially, you or your partner, need to stop them before 7th January 2013 if you do not want to be liable for the tax charge from that date, so you must act swiftly.

It is important to note that only the person entitled to Child Benefit can stop the payments. In some cases, this could be your partner.

Q. Can I stop payments for one child and not another?

A. No. You cannot stop child benefit payments for one child but keep receiving them for another. The charge will apply to all child benefit payments.

Q. My partner does not want to stop the Child Benefit payments, what can I do?

A. Only the person entitled to receive Child Benefit can stop the payments. They do not have to stop them if they don't want to. If you are the person entitled to stop the payments, then you can go ahead and contact the Child Benefit Office.

If you are not the person entitled to the Child Benefit, you will still be liable for the tax charge if your partner does not want to stop the payments.

Q. What happens to the High Income Child Benefit Charge if my circumstances change?

A. In some cases, your circumstances may change that will affect whether you are liable to the High Income Child Benefit charge, or how much you might have to pay. Examples can include when a partner moves in or leaves, changes in your income or changes in your entitlement to receive Child Benefit.
Should your circumstances change, seek advice from HMRC or the Child Benefit Office, you may then choose to stop or restart your Child Benefit Payments.

Q. I would like to restart my Child Benefit payments, what do I do next?

A. Similarly to stopping the payments, only the person who is entitled to Child Benefit can ask for the payments to be started again. This can be done using an online form, by calling the Child Benefit Helpline or writing to the Child Benefit Office.

Q. What happens if my income drops below £60,000?

A. If your income drops below £60,000, for a full tax year, you can apply to restart your Child Benefit payments for up to two years after the end of that tax year.

Q. Can Authorised Agents stop or restart Child Benefit Payment?

A. Not yet. However, HMRC has stated that authorised agents will soon be able to request that payments are stopped or restarted on behalf of their clients.

Q. Where can I find the relevant information to declare for the High Income Child Benefit Charge?

A. There are several ways to find out the amount of Child Benefit to declare. The first is simply to talk to your partner (if they receive the Child benefit Payments). Alternatively, you can search on your bank statements for the right amount.

If you do not have the figure to hand, you can provide an estimate on the Self-Assessment tax return form. Once you find out the actual figure, you can amend your Self-Assessment tax return (if the figure is different to the estimate). It is important that you amend your Self-Assessment tax return as you may have to pay a penalty if you do not pay enough tax.

Q. How can I contact Mitchell Charlesworth for further advice?

A. If you would like advice about the High Income Benefit Charge, please contact your nearest Mitchell Charlesworth office.

FURTHER DETAILS & CONTACT INFORMATION:

The High Income Child Benefit Charge - HMRC Fact Files and Detailed Information - http://www.hmrc.gov.uk/childbenefitcharge/introduction.htm

Registering for Self-Assessment and getting a Tax Return (HMRC Website) - http://www.hmrc.gov.uk/sa/forms/sa1.pdf

Child Benefit Helpline and Child Benefit Office Contact Details (HMRC Website) - http://search2.hmrc.gov.uk/kb5/hmrc/contactus/view.page?record=LNktdzH4gr0

Online Child Benefit Claim Form - http://www.hmrc.gov.uk/forms/ch2-online-stubb.htm

Report a Change in Circumstances - http://www.hmrc.gov.uk/childbenefit/change-circs.htm

Child Benefit Office Telephone - 0845 302 1444

Child Benefit Office Address - Child Benefit Office, PO Box 1, Newcastle Upon Tyne, NE88 1AA

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