Introduction –the UK Child Benefit High Income Tax Charge
As an owner of a UK contractor limited company, are you aware of the UK Child Benefit High Income Tax Charge? The government brought in the High Income Child Benefit Tax Charge during recent times and it applies to individuals who earn above the Child Benefit earnings limit. At the current time, the Child Benefit income limit is set at £50,000. Therefore, it affects those who’re earning over £50,000 a year. This includes UK contractors and other professionals and one will start paying back Child Benefit over £50K. If you’re employed and Child Benefit tax applies, you’ll start to repay the benefit through your tax code via your salary. If you have your own UK contractor company and take mainly dividends as income, you’ll pay back Child Benefit if you earn over £50k via a Child Benefit tax return charge under Self Assessment.
Originally, the UK Child Benefit was payable to all, regardless of how much one earned. However, since early January 2013, there was a change to the rules. Now, if one partner’s income is over £50,000, they aren’t entitled to receive the total amount of benefit. When we say income, this means adjusted net income. This, in turn, means gross income less any tax reliefs. These reliefs will include donations under Gift Aid, personal pension contributions or relief for investments under Venture Capital Trust schemes (EIS, SEIS, and SITR). Therefore, you should bear in mind the high earner Child Benefit Tax Charge and the fact that you start to pay back Child Benefit over £50,000.
Initial thoughts on UK Child Benefit (tax return)
Those who receive Child Benefit income
As a contracting professional, are you responsible for one or more children under the age of 16 (or under the age of 20 if they stay in approved education or training)? If the answer is yes, you can claim for UK Child Benefit. In addition, you’ll receive National Insurance credits when you claim Child Benefit. Therefore, you don’t need to do anything regarding your NI credits.
There’s no limit to how many children you can receive Child Benefit (UK) payments for. Furthermore, only one person in the relationship can receive the benefit for a child.
HMRC contact details
Here’s a couple of links to useful information from HMRC regarding UK Child Benefit.
- Child Benefit transfers. If you’re looking how to transfer Child Benefit from one parent to another, please read the HMRC process.
Two other guides on this website which explain how your personal tax position can be affected in the UK. These are student loan repayments and the UK marriage allowance transfer.
What’s more, you might save tax through SA if you invest in an Enterprise Investment Scheme during the tax year.
How Child Benefit works
The amount that’s payable when you’re claiming Child Benefit
There’s two rates are available when you’re receiving Child Benefit 2023/24:
UK Child Benefit in 2023/24 is worth nearly £2,075 for a family with two children.
Currently, Child Benefit payments can take up to 16 weeks to begin. However, HMRC have now launched an online claim service for new parents. This is a much quicker process, and they say it can take as little as three days for payments to commence. The new digital application form follows a successful pilot scheme. What’s more, most new claimants can use the service if they have (or apply for) a Government Gateway ID. You can apply for Child Benefit with this HMRC link. In addition, they have a useful video in this You Tube link. Which shows how to make a claim. The details and documents you will need to make a claim are:
- Your child’s birth or adoption certificate;
- Bank or building society details;
- Your National Insurance number;
- Your partner’s National Insurance number (if you have one).
Key to note, any claim for children whose birth was registered outside the UK still need to send original documents by post. Furthermore, you can apply as soon as the birth is registered and your claim can be backdated by up to 12 weeks.
The recent history
It was a surprising announcement in the 2012 Budget that UK Child Benefit would no longer be payable to all. UK Budgets are held annually in the Spring, the last of which was the March 2023 Spring Statement.
The change that came in following the 2012 Budget taxes is the higher earner of a couple if one has adjusted net income of over £50,000. If one (or both) partner earns a high taxable income, the highest earner will start to pay back Child Benefit over £50K. Furthermore, the higher earner each year is the who pays the tax charge.
Some common questions from those who may have to pay the UK Child Benefit High Income Tax Charge will include:
- Can I claim child benefit if I earn over 50K?
- Do I have to pay back child benefit if I earn over 50k?
- How much child benefit do I pay back?
- How to pay back child benefit?
- Is it worth claiming child benefit?
- How much is the high income Child Benefit charge?
- Should I claim child benefit if I earn over 60K?
- What is adjusted net income for child benefit?
- Do you declare child benefit on tax return?
- Do I declare child benefit on self assessment?
In this guide, we’ll look into all of the above and find out how the actual Child tax charge works.
The Child Benefit Tax Charge -the process
When do you lose Child Benefit?
The Child Benefit income limit (UK) is £50,000 which means that you’ll start paying back Child Benefit earning over £50,000. This £50K is the person’s overall taxable income after any tax reliefs therefore if your salary is £51K yet you have tax reliefs of £2K your taxable income will be £49K therefore you’ll not need to pay back the Child Benefit income. Therefore, it’s key to bear in mind you pay back Child Benefit over £50K but this is if your overall net taxable income is over £50K.
Who pays the UK taxation charge on Child Benefit?
Now that we know you pay back Child Benefit if you earn over £50k, please take note the partner with the highest income will handle repaying part or all the Child Benefit income they receive. What’s more, if both parents earn over £50,000, it’s the highest earner that should account for this and report it on their tax return.
How do you pay the HMRC High Income Child Benefit Tax Charge?
If you’re the highest earner and are in employment and pay your tax via the PAYE system, the tax charge will be included in your tax code. HMRC may also estimate the Child Benefit high income charge amount for the following year. Therefore, the amount in your tax code may not always be correct. As a result, there’ll be some balancing up to do at the end of the tax year.
When the highest earner completes a UK tax return, they will include the Child Benefit amounts received. As a result, the tax charge on this’ll be part of the overall tax bill that’s payable to HMRC.
How much is the child benefit tax charge?
As we mention earlier, if you’re the highest earner in a couple, you’ll repay some Child Benefit if you earn over £50k of taxable income. Basically, the Higher Income Child Benefit Charge is chargeable on a sliding scale, between the income of £50,000 and £60,000. As mentioned, the higher earner will pay a tax charge on Child Benefit. However, how much is the tax charge on Child Benefit? When we look this up, the tax on Child Benefit is calculated at a rate of 1% for every £100 of income that they earn over £50,000. What’s more. the official name for this tax is the Child Benefit Higher Income Tax Charge.
If the higher-earning parent earns over £60,000 a year, the entire Benefit is, in effect, removed. Therefore, you’ll pay back all Child Benefit over £60K and consequently, it’s paid back as part of your tax bill. As a result, you’ll be paying back Child Benefit over £50K and you’ll be paying the Child Benefit tax charge as part of your Income Tax bill that’s payable to HMRC each year.
Please take note if both parents earn under £50,000, the rules won’t affect them. Therefore, if both earn £45,000 (a total of £90,000), they can still claim the full Child Benefit. Yet, for a family with only one earner earning over £60,000, they’d lose all their Child Benefit.
Child Benefit (tax return) -your choices when the charge applies to you
Apply to de-register for Child Benefit
You can contact the Child Benefit Office by completing an online form or calling them. If you call them, you’ll need to give them your National Insurance number. You can also view the HMRC community forums on the Child Benefit Tax charge to see visitor questions and HMRC answers.
Declaring Child Benefit on tax return
When you’re not de-registering, do you declare child benefit on tax return (UK)? The answer to this is yes and if you’re a limited company contractor or small business owner and the higher earner, you’ll need to declare the UK Child Benefit that you received on your personal tax return. There’s a section on your tax return where you can complete this. As a result of this, HMRC will adjust your tax bill accordingly. However, if you overlook to include this, it will be a Self Assessment tax return error. Therefore, if you are the higher earner and receive Child Benefit, please ensure you include this on your personal tax return.
Furthermore, if your partner is the higher earner, they can do the same. However, they’ll need to register for Self Assessment (SA) if they’re already set up for SA. Once they register for SA, they need to report and repay the amount of Child Benefit that they owe as a result of their income.
If these rules affect you, the two available options are to either apply to de-register for Child Benefit or pay the charge.
Pay and declare the Child Benefit Tax Charge to HMRC
The tax charge on your tax return
When you calculate your gross taxable income, you can make deductions for several things. These include personal pension contributions. They also include charitable donations under Gift Aid and payments to Venture Capital Trust schemes (EIS, SEIS, SITR). Therefore, please include these, as they’ll reduce your overall taxable income. As a result, your income is no higher than it needs to be. What’s more, by claiming for any tax reliefs, it may also bring your total income beneath the level where the UK Child Benefit High Income Tax Charge comes in.
Once you have done the above, if your net adjusted income is more than £50K, you’ll pay back the relevant part of the Child Benefit. As a result, the Child Benefit Self Assessment charge will be part of your overall tax bill. As a result, this is payable to HMRC, by 31 January following the end of each tax year.
Paying Child Benefit tax charge to HMRC
You can pay the Child Benefit higher rate tax charge via your Self Assessment tax return. Alternatively, you can arrange the paying back child benefit through tax code. Indeed, you might do this if your only main income is salary. If you prefer this option, you’ll still need to complete a tax return for Child Benefit reporting and, if you’re not yet registered, you’ll need to organise this.
As a final note on the UK contractor Child Benefit Tax Charge, there are also tax-saving opportunities here. Limited company contractors can consider paying their partner a salary from their company or transferring some shares to them. As part of this, the contractor will lower their own potential gross taxable income. This is an area which you should discuss with your contractor accountant.
Link to Contractor Advice UK group on