Child benefit is not usually a form of taxable income, which means Britons will not usually have to pay Income Tax on the sum. However, in some instance the payment intended to help families will have to be subject to a tax charge. The High Income Child Benefit Tax Charge, or HICBC as it is sometimes known, must be paid dependent on a person’s income.
If a person has an individual income of over £50,000 and they or their partner are in receipt of Child Benefit, the charge is applicable.
Individuals will be required to pay back one percent of every £100 earned back to the Government through a Self Assessment tax return.
The amount of tax payable will vary, but for incomes above £60,000, the entire Child Benefit sum is wiped out in tax payments.
It is now clear the impact the High Income Child Benefit Tax Charge has had on families across the country.
As a result, more families are finding themselves “caught” in the High Income Child Benefit Tax Charge, and will need to pay back some of the money at the least.
Sean McCann, Chartered Financial Planner at NFU Mutual, commented on the matter.
He said: “The £50,000 threshold hasn’t changed since it was introduced in 2013, meaning that more and more families have been caught as incomes have increased.
“In 2013, 40 percent income tax was payable on income over £42,475. The £50,000 child benefit threshold was set at a level perceived to be a high income.
“Since then, the point at which 40 percent income tax becomes payable has risen to £50,000, while the threshold for the High Income Child Benefit Tax Charge has remained the same.”
However, the Government has also managed to save billions of pounds from families who have opted out of receiving Child Benefit altogether.
Due to the tax implications, many people simply choose to forego the tax rather than undergoing the processes paying the tax bring.
It is important, though, to understand the implications of opting out of Child Benefit payments.
If a person is not working while looking after their child, they can still get National Insurance credits until their youngest child is 12, as long as they clam Child Benefit.
This could be particularly important in a National Insurance record, helping a person to achieve as many contributions to put towards their state pension in the long run.
Therefore, if wanting to avoid the tax while still getting the benefits of National Insurance credits, families are advised to still fill in the Child Benefit form, but opt not to receive the payments.
Stopping altogether could mean non-working parents miss out boosting their state pension in the long term.