The new High Income Child Benefit Charge (HICBC) takes effect from 7 January 2013. It is a tax charge designed to claw back child benefit received by a couple if at least one member of the couple has an income in excess of £50,100. This income threshold is not by reference to the total of the couple but rather to the higher earner of the two. Where the higher earner has an income in excess of £60,000 then all child benefit received is fully clawed back. Where the higher earner has an income between £50,100 and £60,000 then the child benefit is clawed back at a rate of 1% of the child benefit received for every £100 of income above £50,000.
This is a very cumbersome policy being introduced by the government. The universal benefit nature of child benefit is being abolished and child benefit is to all intents and purposes being turned into a means tested child related tax credit. However, rather than directly deal with the change in this way, child benefit will continue in the same way that it has done for the past 35 years or so but with a claw back being dealt with through the self assessment tax system. It therefore merges the benefit system and the tax system and puts a financial liability on the higher earner of the two even though that individual may never have received any of the child benefit in the first place. So this new system not only requires the tax and benefit system to be merged but also it needs to take account of the financial position of couples as a household (and the couple does not have to be married or in a civil partnership).
This tax charge was announced in the 2012 Budget in March and legislated in Finance Act 2012, however H M Revenue & Customs (HMRC) are only now writing to those people that it believes may be effected by this change. This has been very late in occurring and HMRC are only writing to individuals that they know to have income above the threshold where there is a child benefit claim at their address. Further, HMRC seems reluctant to have copies of these letters in the public domain and so has asked the professional bodies not to put copies of the proforma letters on their websites. So although it has been heavily publicised that letters are now being sent out, professional advisers have not been made aware of the contents. This does not help us in advising our clients.
For more details, please refer to our factsheet.