Child Benefit Tax Charge to be simplified for thousands of parents

HMRC has announced a significant change to how higher-earning parents pay the High Income Child Benefit Charge (HICBC), a move that could simplify the process for tens of thousands of families. Currently, anyone earning over £60,000 whose household receives Child Benefit must repay some or all of it by registering for and filing a Self Assessment tax return. The system has often been criticised for its complexity, catching many parents unaware and leading to unexpected penalties.

Employed individuals who are liable for the charge will now have the option to pay it through their PAYE tax code. This means the charge will be collected automatically from their salary each month, removing the need for many to complete a tax return solely for this purpose.

What is the High Income Child Benefit Charge?

The High Income Child Benefit Charge applies if you or your partner has an individual income over £60,000 and your family receives Child Benefit. The charge is tapered, meaning you gradually pay more back as your income rises. For every £200 of income you earn above £60,000, you are required to pay back 1% of the Child Benefit your family receives. Once your income reaches £80,000, the charge is equal to 100% of the benefit, meaning you must repay the full amount. It is always the partner with the higher income who is responsible for paying the charge, regardless of who actually receives the benefit payments.

Why is this change being made?

The current system has long been a source of confusion. Many parents with straightforward, PAYE-only jobs have been unexpectedly hit with fines for failing to file a tax return, often because they were simply unaware of the requirement. By allowing the charge to be collected through payroll via a PAYE tax code adjustment, HMRC aims to streamline the process and reduce the administrative burden on families.

How will the new system work?

The new system will be optional and is aimed at employees, not the self-employed or those who need to file a tax return for other reasons, such as having rental or investment income over £10,000. HMRC has stated it will write to over 100,000 people who are newly liable for the charge to invite them to use the new service. Those who already pay through Self Assessment and wish to switch can contact HMRC to do so, provided they do not require a tax return for any other reason.

Below is a summary of how the tax code adjustment will work:

• Opt-in service: Eligible parents will be able to use a new online service to opt in to paying the HICBC through PAYE.
• Tax code adjustment: Once you opt in, HMRC will adjust your tax code to collect the estimated amount of the charge throughout the tax year. This deduction will be made from your salary, in addition to your usual income tax.
• No more tax returns (for some): If the HICBC was the only reason you were filing a tax return, you will no longer need to do so.

How to opt in to pay the High Income Child Benefit Charge via PAYE

Below is a summary of how you can opt into the new service:

• Those paying the charge for the first time: Fill in the form online via the Gov.uk website. Alternatively, you can use the HMRC app.
• Those who already pay via self-assessment: Those who only complete a tax return in order to pay the High Income Benefit Charge can call HMRC on 0300 200 3310 (Lines are open from 8am to 6pm, Monday to Friday)
• Deadline for the 2024/25 tax year (6th April 2024 to 5th April 2025):  You'll need to opt in before 31st January 2026, however, you will only need to do this once.

Is it worth claiming Child Benefit if your income is over the qualifying threshold?

Yes, but you may wish to register for Child Benefit and then opt out of receiving the payments altogether if your income means that you would be required to repay the full amount. There are advantages to being registered for Child Benefit as by doing so and opting out of the payments, you will retain the advantages without inviting the administrative task of repaying the amount that you are not owed.

By registering your claim, you ensure:

• National insurance credits: Parents who are not working or are low earners can receive National Insurance credits that count towards their State Pension entitlement. Not claiming could leave a gap in their record.
• Automatic NI number: Your child will automatically be issued with a National Insurance number just before they turn 16, which they will need for work or applying for a student loan.