The High Income Child Benefit charge was introduced from 7 January 2013. You may be liable to this new tax charge if you, or your partner, have an individual income of more than £50,000 and one of you gets Child Benefit or contributions towards the upkeep of a child.
Who is affected by the High Income Child Benefit charge?
You will be affected by the High Income Child Benefit charge if during a tax year any of the following applies to you:
• you have an individual income of more than £50,000 and are entitled to receive Child Benefit
• you have an individual income of more than £50,000 and live (or have lived) with a partner who's entitled to receive Child Benefit
• 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
What to do if you're affected
You will need to choose to do one of the following:
• keep receiving Child Benefit payments - but if you do you will need to declare the amount you or your partner are entitled to by filling in a tax return each year and registering for Self Assessment if you haven't done so already
• tell the Child Benefit Office that you want to stop receiving Child Benefit payments - in which case you won't be liable for the new tax charge and won't need to fill in a tax return (unless you need to for other reasons). This would only make sense if you have adjusted net income over £60,000.
How the tax charge works
The amount of the tax charge will be based on the amount of Child Benefit entitlement and the level of what is known as 'adjusted net income'.
What is adjusted net income?
Adjusted net income is total taxable income less certain tax reliefs, for example for: • trading losses • donations made to charities through Gift Aid • pension contributions paid gross (before tax relief) • pension contributions where your pension provider has already given you tax relief at the basic rate
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.
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
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.
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.
Tena Wallace, HR & Payroll Director at Visionary Accountants St Albans said: 'If you are affected by these High Income Child Benefit charges and want advice please contact one of our team on 01727 730550. We can explain your choices and provide you with more information about how the tax charge works.'