Child Benefit is paid out to adults by the UK government if they are responsible for bringing up a child who is under 16, or under 20 if they stay in approved education or training. Many claimants, though, will have to pay a tax charge in order to claim the benefit, known as the High Income Child Benefit Charge (HICBC). HICBC affects parents or guardians who earn over £50,000 and £60,000 – with different rules respectively for each earning bracket.
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The HICBC, which was introduced in January 2013, requires those with an income over £50,000 to pay back Child Benefit in tax.
The gov.uk website explains the charge is “equal to one percent of a family’s Child Benefit for every extra £100 of income over £50,000 each year.”
The amount to pay is entirely dependent on what the government describes as a person’s “adjusted net income”, as well as the amount they are entitled to receive in the first place.
Understandably, this can create complicated circumstances, as there is no one-size-fits-all approach.
Fortunately, the government has developed a Child Benefit tax calculator to help Britons understand their level of taxation.
This tool is accessible through the government’s website and aims to provide claimants with additional help calculating their Child Benefit tax.
The tool helps people to gain an estimate of two main components:
- How much Child Benefit a person can receive in a tax year
- The HICBC the claimant or their partner/spouse may have to pay
The calculator first asks claimants how many children they wish to claim for, alongside the tax year relevant to them.
Claimants must also enter details of their income, including salaries before tax, and any other relevant income, from employment or otherwise.
This enables the calculator to work out into what tax bracket a person falls.
The user is also asked to fill in additional information on allowable deductions, such as pension contributions deducted from pay, gift aid donations or cycle schemes.
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It is worth noting, though, that this entire section is optional and so may be skipped if not relevant.
The calculator then adds up all of these components to determine whether a person must pay tax on their benefit, and if so, how much.
However, those who earn more than £60,000 should pay particular attention.
This is because they are likely to lose all of their Child Benefit entitlement through income tax.
The rules dictate those earning in this bracket will need to pay 100 percent back in taxes.
For this reason, and the tax charges required of those earning above £50,000, many families choose to opt out of receiving payments.
However, this could be a grave error which has serious consequences later in life.
The reason for this is because claiming Child Benefit provides additional perks, relating to both parents and children.
By filling out the CH2 claim form, but opting out of the payment, parents and guardians can still receive valuable National Insurance credits which count towards a State Pension.
In addition, a child also becomes automatically provided with a National Insurance number once they reach 16.
In the 2017/18 financial year, the government stated the number of people paying the HICBC reached 293,000.
In 2017, those who opted out of receiving the payment reached 516,000.
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