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Introduction –the UK High-Income Child Benefit Tax Charge
As an owner of your own UK contractor limited company, are you aware of the UK High-Income Child Benefit Tax Charge? This was introduced in recent times and applies to individuals who are earning over £50,000 a year. This includes UK contractors as well as all other professionals and under this system, an individual will start to pay back Child Benefit over £50K by way of a tax charge. Therefore, if this applies you will start to repay Child Benefit if you earn over £50k via your Self Assessment tax return or through your tax code.
Originally, the UK Child Benefit was payable to all, regardless of how much one earned. However, since early January 2013, the rules have changed. Now, if one partner’s income is over £50,000, they are not 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 start to pay back Child Benefit over £50,000.
Child Benefit (tax return) -initial thoughts
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 will receive National Insurance credits when you claim Child Benefit. Therefore, you do not need to do anything regarding your NI credits.
There is no limit to how many children you can receive Child Benefit payments for. Furthermore, only one person in the relationship can receive the benefit for a child. If you are looking how to transfer Child Benefit from one parent to another, please read the HMRC process.
Two other articles on this website which explain how your personal tax position can be affected in the UK are student loan repayments and the UK marriage allowance transfer.
What’s more, you might save tax through your Self Assessment if you invest in an Enterprise Investment Scheme during the tax year.
How Child Benefit works
The amount that is payable when you are claiming Child Benefit
Two rates are available when you are receiving Child Benefit:
| Who the allowance is for | Rate (weekly) for the 2022/23 tax year |
| Eldest or only child | £21.80 |
| Extra children | £14.45 per Child |
UK Child Benefit in 2021/22 is worth nearly £1,885 for a family with two children.
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 2022 Spring Statement.
The change that came in following the 2012 Budget taxes is the higher earner of a couple if one earns over £50,000. If one (or both) of the earner(s) has a high taxable income, they will start to pay back Child Benefit over £50K.
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 will 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 will not need to pay back the Child Benefit. Therefore, it is key to note your pay back Child Benefit over £50K but this is if your overall net taxable income is over £50K.
Who pays the charge?
Now that we have established you pay back Child Benefit if you earn over £50k, please note the partner with the highest income will handle repaying part or all the benefits received. What’s more, if both parents earn over £50,000, it is the highest earner that should account for this and report it on their tax return.
How do you pay the charge?
If you are the highest earner and are employed and pay your tax via the PAYE system, the charge for Child Benefit will be included in your tax code. HMRC may estimate this amount for the following year. Therefore, the amount in your tax code may not always be correct. As a result, there will be some balancing up to do at the end of the tax year.
When the highest earner completes a UK tax return, under Self Assessment Child Benefit will be included. Consequently, the high earner Child Benefit Tax Charge will be included as part of their overall tax bill that is payable to HMRC.
How much is the child benefit tax charge?
As mentioned earlier, if you are the highest earner in a couple you will Child Benefit if you earn over £50k of taxable income. The Higher Income Child Benefit Charge is chargeable on a sliding scale, between the income of £50,000 and £60,000. The higher earner will pay the Child Benefit Higher Income tax charge at a rate of 1% for every £100 that they earn over £50,000.
If the higher-earning parent earns over £60,000 a year, the entire Benefit is, in effect, removed. Therefore you will pay back all Child Benefit over £60K and consequently, it is paid back as part of your tax bill. As a result, you will be paying back Child Benefit over £50K and you will be paying the tax charge as part of your Income Tax bill that is payable to HMRC each year.
Please note if both parents earn under £50,000, the rules will not 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 would lose all their Child Benefit.
Child Benefit (tax return) -your choices if the Child Benefit Tax 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, you will need to give them your National Insurance number when you ring them.
When not de-registering, do you declare child benefit on tax return (UK)?
If you are a limited company contractor or small business owner and the higher earner, you will need to declare the UK Child Benefit that is received on your personal tax return. There is a section on your tax return where you can complete this. As a result of this, HMRC will adjust your tax bill accordingly.
Furthermore, if your partner is the higher earner, they can do the same. However, they will need to register if they are not yet registered for Self Assessment (SA). Once registered 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 Child Benefit -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 will reduce your overall taxable income. As a result, your income is no higher than it needs to be. Notably, it may also bring your income beneath the level where the High-Income Child Benefit Tax Charge comes in.
Once you have done the above, if your netted adjusted income is more than £50K, you will pay back the relevant part of the Child Benefit. As a result, the Child Benefit Self Assessment charge will be part of our overall tax bill which is payable to HMRC, by 31 January following the end of each tax year.
Pay the 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. Notably, you might do this if your only main income is salary. If you prefer this option, you will still need to complete a tax return for Child Benefit reporting and, if you are not yet registered, you will need to organise this.
Opportunity
As a final note, 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 that you should discuss with your contractor accountant.
Link to Contractor Advice UK group on
