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Significant changes to high income child benefit charge

Author: ICAEW Insights

Published: 06 Mar 2024

Child benefit will be recovered based on household income, the Chancellor has announced. This will challenge HMRC’s limited resources as it will have to collect additional data and change its systems and processes.

At Spring Budget 2024, the Chancellor addressed a significant anomaly inherent in how child benefit is recovered through the high income child benefit charge (HICBC). The announcement includes both a longer-term solution and an interim measure.

HICBC recovers child benefit through a charge on the higher earner in a household. This has advantaged dual income couples over single income couples. A dual income couple each earning up to £49,999 does not incur the charge, whereas a couple (or single person) with one income of £50,000 or more does incur the charge.

The government has committed to removing this unfairness and plans to instead move to a system based on household rather than individual incomes by April 2026. The government will consult in due course.

Caroline Miskin, Senior Technical Manager ICAEW Tax Faculty, said “The problems with HICBC were apparent to the profession when it was first proposed and addressing them is long overdue. However, the preferred option would be to remove the charge and, if wished, recover child benefit other than through the tax system.

"We are concerned that the complexity of the charge is being entrenched and it will continue to cause problems and additional contact for HMRC. HMRC will need to collect a lot of additional data on household income and use its limited resources to devise new systems and processes.

"The experience of Tax Credits tells us how problematic household-based processes can be. The government has announced plans to collect HICBC without requiring a self assessment tax return but no implementation date has been announced.”

Interim change

The HICBC adjusted net income threshold will increase to £60,000 from 6 April 2024.

For individuals with income between £60,000 and £80,000, the rate at which HICBC is charged is halved, and will equal 1% of the child benefit payment for every £200 of income that is more than £60,000.

For individuals with income above £80,000, the amount of the tax charge will equal the amount of the child benefit payment. 

For child benefit claims made after 6 April 2024, backdated payments will be treated for HICBC purposes as if the entitlement fell in the 2024/2025 tax year if the backdating would otherwise create a HICBC liability in 2023/2024. However, in some cases it will be advantageous to wait until 6 April to make a claim for child benefit. Child benefit claims can now be made online using the HMRC app. 

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