Child benefit tax return rules are changing – what is the high income child benefit charge?

High-earning parents will soon be able to pay the high income child benefit charge (HICBC) through their payslip, saving them the hassle of filing a tax return.

The announcement was part of a series of tax changes unveiled in the Spring Statement.

From the summer, employees liable to pay the HICBC will be able to report their family’s child benefit payments through a new digital service and opt to pay the charge directly through PAYE, without the need to register for self-assessment.

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This means they can have the money taken out of their payslip and don’t need to complete a tax return.

Labour previously said in the Autumn Budget that it planned to simplify the child benefit system and let employed individuals pay the charge through their tax code from 2025.

According to the Treasury, the cost of the changes to the HICBC will be £25 million over four years from 2026-27. This could be due to more people signing up for child benefit payments, and/or a loss of revenue from fewer people submitting tax returns.

What is the high income child benefit charge?

The high income child benefit charge (HICBC) is a way of paying back child benefit if you or your partner is classed as being a higher earner.

If you or your partner have an individual income that is over £60,000 for the 2024-2025

tax year, you will need to pay the charge. For previous tax years, the threshold is lower, at £50,000.

The child benefit threshold was raised to £60,000 by former chancellor Jeremy Hunt in his Spring Budget last year.

To work out if your income is above the limit, you’ll need to work out your “adjusted net income”. This is your total taxable income before any allowances, which includes interest from savings and dividends, as well as taxable benefits you get from your job, like a company car or medical insurance – but not including things like Gift Aid.

If your adjusted net income is over the threshold and so is your partner’s, then whoever has the higher income is responsible for paying the HICBC.

For those with an income of between £60,000 and £80,000, you pay back part of the child benefit on a sliding scale depending on your earnings. Those with an income of more than £80,000 pay back all of the child benefit via the tax charge.

Sean McCann, chartered financial planner at financial advisory firm NFU Mutual, explains: “If you’re the highest earner in your household with an income of more than £60,000, and you or your partner claim child benefit, you’ll need to pay the child benefit tax charge. For every £200 of income you have over £60,000 you pay back 1% of the child benefit. Once your income reaches £80,000 you repay the full amount.”

He adds: “You can become subject to the charge if you moved in with someone who is claiming child benefit, even if they’re not your children. The good news is anything you’ve paid into your pension is knocked off your income before the charge is assessed. If it reduces your income below £60,000, you won’t need to pay the charge.”

How do I pay the high income child benefit charge?

To pay the tax charge under the current rules, you must register for self-assessment and fill in a tax return each year and pay what you owe.

Experts have long criticised this approach, as it forces parents to complete a tax return even when they don’t have any other income or information to declare.

However, this will change at some point this summer, with parents able to report their family’s child benefit payments through a new digital service and pay the HICBC directly through changes to their PAYE tax code.

McCann says allowing the charge to be paid through PAYE “will make it easier for those employees who have never completed a tax return”.

Alice Haine, personal finance analyst at Bestinvest by Evelyn Partners, the online investment platform, adds: “The current system requires parents liable for the charge to register for self-assessment. Removing this hurdle and allowing parents to pay it through PAYE will simplify the process.

“The HMRC app is very user-friendly and helps to make handling personal tax affairs much more straightforward. Adding a HICBC PAYE digital service to its suite of services from the summer of this year should hopefully ensure more parents receive child benefit or don’t miss out on National Insurance credits.”

What happens if I don’t pay the high income child benefit charge?

The charge has been criticised because some families aren’t aware they have to pay it, or are confused about whether it applies to them, and have been hit with large tax bills and fines when HMRC catches up with them.

McCann tells MoneyWeek: “HMRC sent out more than 127,855 reminders in 2022/23 to people who needed to pay the high income child benefit tax charge. Ignoring these letters could land you with interest payments on the outstanding amount and a fine. HMRC has collected £28.6 million from people who failed to pay this tax since its introduction in 2013.”

He adds that there have been “numerous cases where significant arrears have built up over several years, resulting in unexpected five-figure tax bills”.

Is it possible to avoid the high income child benefit charge?

It may be possible to avoid or reduce the high income child benefit charge by lowering your earnings.

“For high earners, who risk missing out on part or all of their child benefit payment, salary sacrifice can be one way to ensure they receive as much of it as possible,” says Haine.

“Some employers will let their staff reduce their salary or bonus payments in lieu of increased pension contributions. It is worth asking your employer if they offer such a scheme as such a move would give a parent a lower headline income, potentially enabling them to secure more of their child benefit entitlement.”

Robert Salter, director of the accountants Blick Rothenberg, points out that another option might be for the higher earning parent to reduce their hours.

“For example, going from five days per week down to four days per week, so that one’s income falls below the starting threshold for HICBC,” he says.

“Whilst this clearly comes with a headline salary loss, one may find – at least in some cases – that the real, net cost of the reduced hours (once factors such as extra childcare costs are taken into account) is relatively small.”

I earn above £80,000 – should I bother claiming child benefit?

There may seem little point in claiming child benefit if you or your partner earn above £80,000.

While not doing so could save you the hassle of paying it back via the high income charge, there are a couple of things to bear in mind. One is the important issue of National Insurance credits – which can impact your state pension entitlement.

Haine explains: “The important thing with the current system is that all parents, including high earners, register for child benefit even if they lose the full benefit because of the HICBC. Even if one partner – or both - earns too much to receive a cash payment, they are still entitled to valuable National Insurance credits, which count towards their state pension.

“Every year that a parent is registered for child benefit for a child under 12, they automatically earn Class 3 National Insurance credits, which equate to one qualifying year for state benefit purposes.

“Failing to register means a parent risks losing out on 12 qualifying years for their state pension. A parent with more than one child could lose out even more as child benefit applies until the youngest child turns 12."

If you’re sure that you or your partner will earn above £80,000 and therefore your family won’t be entitled to any child benefit, it’s possible to register for child benefit but opt out from receiving the payments (therefore avoiding having to pay the HICBC) while still retaining your entitlement to NI credits.

It’s also a good idea to register for child benefit (even if you opt out of receiving the money) as it ensures your child automatically receives their National Insurance number three months before their 16th birthday – something they need to start working.

Salter tells MoneyWeek that parents should think carefully about how much their income will be in a tax year before deciding to opt out.

“Is it possible that the higher earning partner’s income in a tax year will be between the £60,000 and £80,000 thresholds rather than clearly above £80,000? If so, it is always sensible to claim the child benefit in the first instance. This is realistically the case even where one ‘expects’ to earn more than the £80k threshold, but there is a slight element of doubt in this regard.”

He gives the example of self-employed people whose income may fluctuate on a year-to-year basis or employees who earn a substantial element of their overall compensation via commission or bonuses.